HMRC has clarified its current position in relation to the MSC legislation, but some questions remain.

At Lawspeed’s fully attended one day conference held on 11th October 2007, Robin Wythes, of HMRC and responsible for MSC legislation, indicated that HMRC recognises the difficulties that employment businesses have in identifying whether a contractor is operating through an MSC. 

In order to reduce concerns over debt transfer he said that an MSC tax and NICs debt would not be transferred to an employment business if the individual worker providing the work services through an MSC was already operating through a limited company at the time he/she first approached the employment business. This is because in those circumstances it could not be said that the employment business had either encouraged or been actively involved in the individual providing their services through the particular company.

Adrian Marlowe, Managing Director of Lawspeed, said “this clarification of  HMRC policy was warmly welcomed by all attending our conference and it is an enormously helpful clarification which should assist all employment businesses to identify cases where there is no risk of debt transfer”.

He went on to say “In practice the policy as explained requires that the company must already be in existence before the worker contacts the employment business, and the individual continues to operate through that company  if all risk is to be avoided”.

Robin explained that “the policy is consistent with the aims of the legislation, which is not designed to penalise recruitment companies where they have had no encouragement in the use of a company.  There can be no encouragement if the MSC company is already in existence at the outset”.

It is understood that a formal  announcement concerning this  policy clarification is to be posted  shortly on the HMRC website.

Robin also addressed speculation that there is to be an audit scheme of MSC Providers. He said “firstly there emphatically is not going to be any accreditation scheme operated by HMRC. We do not have the resources to run such a scheme. However, we are considering a scheme whereby MSC providers could be audited by third parties applying a published HMRC Audit Standard. This would then determine whether or not the MSC legislation applied. The idea is that this should allow employment businesses to safely deal with those that have been reviewed applying the Audit Standard where such a review confirms that the MSC provider’s client companies are not MSCs. No decision has as yet been made as to whether such a scheme will proceed for certain and there is a lot of work yet to be done in this area, but we are looking positively on the idea. If a decision is made in favour of the scheme, we would aim to publish the requirements by the end of this year, bearing in mind that the tax transfer rules will apply to employment businesses from 6th January 2008”.

Adrian Marlowe commented “Any such scheme would be of great benefit to the industry. However as things currently stand questions remain as to whether any scheme will definitely go ahead, and if so what the ingredients would be.  This will no doubt involve a tricky balancing act between providing a level playing field for all providers operating in this area, and the government achieving its objectives under the MSC legislation”.

Adrian went on to say “The limited company clarification should also help contractors already operating through limited companies when they registered with an employment business, as there will be no longer any need for the employment business to ask lots of MSC related status questions”.

Lawspeed specialises in advising recruitment companies and contractors. For further information please contact Lawspeed on 01273 236236 or email info@lawspeed.com.