MSC Legislation and Agencies

[dodgy_Dave]

Here's one for all you accountants. Pretty much every day (for every new contractor), we go through the incredibly arduous exercise of making sure the contractor isn't operating through a Managed Service Company (MSC). Our compliance team have literally written a book on the subject - what to look out for, what is an MSC, what could be an MSC, why MSC's are bad news etc. My question is this, as a freelance agency, do we really need to worry about the MSC legislation?

[curleyted]

Why are you worried? If you didn't tell someone to trade a certain way you won't be liable, as far as I understand it.

If the carpet fitter I get to do some work doesn't declare his full earnings and owes tax the HMRC don't chase me for the underpayment merely because I employed him to do some work, do they?

[Seb Maley]

I think there's certainly reason to be aware and conversant with the MSC legislation.

Refer to 4.2 of HMRC's MSC Guidance. Firstly neither Chapter 9 ITEPA 2003 nor S.688A ITEPA catch Employment Businesses or Agencies carrying on their core business. If, however, an Employment Business/Agency:

- Demonstrably carries on a business of providing company/p'ship structures through which workers provide their services & provides services to those companies/p'ships to the extent that they would be considered involved, then the Agency would be an MSC Provider; OR
- Demonstrably acts in concert with an MSC Provider for the purposes of securing an individual's services via a company, then the Agency would be an associate of an MSC, although it is possible to have a PSL in place.
- Demonstrably encourages an individual to operate through an MSC beyond the mere placing of the worker's company with end clients or is actively involved in the MSC's provision of the worker's services, then the Agency could potentially render itself liable to the transfer of debt provisions.

The middle one is most relevant, really. However, most agencies now will carry out MSC-related checks and that should be enough if HMRC come knocking.

Some agencies go too far though - one thing we have seen a lot of is clauses in contracts stating that the individual providing the services should have full financial control over the supplier company. Whilst it is designed with MSC in mind, it clearly has a negative impact from an IR35 perspective.

[curleyted]

Some complicated sentences there Seb! I was under the impression that if you were already trading a certain way BEFORE you sent your CV to the agency/went for interview etc. then they have at no point offered 'advice' to trade a certain way/avoid taxes and would be in the clear?

[Seb Maley]

Sorry about the complicated sentences - that's what you get from reading thousands of contracts and endless rubbish from HMRC. I don't talk like that in real life.

You are absoltuely correct, but I'm sure agencies deal with plenty of people new to contracting as well.

[curleyted]

What about if they just say "google it" - if there's no written record of telling them to operate a certain way and no PSL surely they would be OK?

[Beefy198]

I agree with curley - if they take a hands off approach then all should be good surely? Like he said earlier, if you find out a contractor who worked on your house dodged taxes (or any other B2B supplier) they wouldn't chase you.

There needs to be some fault in your actions/advice to do transfer the debt, otherwise life would be crazy. Car company didn't tell you to drive at 30 in a 30 and you get caught speeding? Don't pay the fine and the police will collect it from them instead then....

[Seb Maley]

Yes, absolutely. An agency acting innocently with knowledge of what the MSC legislation is will be fine. As I said, however, I think it's important that they know how it works.

It's quite difficult to give any firm opinion in without any previous cases though.

[The SMG]

Originally Posted by Seb Maley

Yes, absolutely. An agency acting innocently with knowledge of what the MSC legislation is will be fine. As I said, however, I think it's important that they know how it works.

It's quite difficult to give any firm opinion in without any previous cases though.

From what I can gather, the MSC legislation is just another piece of 'deliberately worded' ambiguous tax law that tries to make freelancers fit into the PAYE model. Most agencies that I have worked through recently don't have a clue. I've seen some outrageously stupid questionnaires - "are you paying yourself dividends?, if so we believe you are working through an MSC"! Forgetting of course that most contractors choose to run their own Limited Company (or PSC) and can happily pay themselves dividends without any problem (well, apart from IR35 but that’s just another can on worms).

HMRC just want their cake and eat it. “Work freelance, it’s great” - “Working freelance?, sorry, you must pay taxes as an employee”.

Unbelievable…

[Beefy198]

I saw one once that said "do you use a third party to manage any part of the company's finances?"

Well yes... an accountant.

You wouldn't believe the amount of grief that caused me with their legal department.