Tag Archive | "Managed Service Company"

Government clamping down on Manage Service Companies

New research has revealed that the government is taking steps to put an end to using Managed Service Company legislation as a method of tax avoidance.

A Freedom of Information request submitted to Her Majesty’s Revenue & Customs has discovered that new plans are in the work to allow the government to recover National Insurance and tax contributions, and some measures have already been instituted to increase the number of tax avoidance investigations. Three times the number of investigations into Managed Service Companies that may be engaging in tax avoidance have occurred in just a few short months, the released official documents recount, with the number of tax avoidance arrangement enquiries made in regards to Managed Service Companies has increased to 860, a massive jump from the figure of 216 enquiries just seven short months ago.

It was also revealed that since April 2011, there have been a sum of 142 debt transfer notices issued. This could lead to serious repercussions in the future for any recruitment firms that deal with managed service providers and could have a chilling effect on the use of such service companies in the future.

The legislation , which calls for a definition of ‘Managed Service Company’ as any contractor organisation that pays its workers higher than a permanent employee would earn in the same position, could lead to recruiters being found responsible for National Insurance and income tax payments that were originally avoided by any Managed Service Company they use.

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If you think a professional accountant is expensive, wait till you hire an amateur!

For some reason I’ve seen a whole raft of questions and complaints about that most retiring of professionals, our friend the humble accountant. What is more, the questions and complaints being raised tend to demonstrate why they need an accountant in the first place.

There are two basic themes, best summarised as “How much?!” and “My accountant won’t let me…”.

The “How much” brigade really amuse me. They usually ask for recommendations for a good accountant who only charges £50 a month. Well look, I used one of them when I started out in contracting, on the recommendation of someone who knows about these things and I was young (ok, youngish) and naïve. After a couple of years, when I’d learned what I was doing, I worked out he’d cost me a few thousand in unnecessary taxes, late filing penalties and generally weak advice. Rather more than I‘d paid him for his services, in fact. So I switched to one of the contractor specialist accountants who recovered that money over the next year or two by giving rather more appropriate advice and stayed with them ever since.

I’ve always said that a good accountant is free anyway. Let’s face it; I do two kinds of stuff. Some stuff is for clients and I get paid for doing it, at an hourly rate well above what my accountant charges. The other is stuff I want to do – well, OK, more usually stuff that She Who Must Be Obeyed wants me to do – and I don’t get paid for it (usually quite the opposite, in fact!). And doing accountancy beyond the bare minimum of logging what money went where does not fit into that category. So as far as I’m concerned the accountant is doing stuff I don’t want to do that has to be done, more accurately and far more cheaply than I could do it. So something of a no-brainer.

On the other hand, the members of the “Won’t let me” brigade are seriously deranged. In the last couple of days I’ve seen someone trying to claim spending £5500 on a single PC (including £2400 on two monitors) as a business expense, someone asking about charging his MBA course as a necessary business cost and someone asking about making his three year old a shareholder to save tax, then having a go at their accountant for asking questions. There are others – just wait a day or two and another one will be along…

OK, the first guy might have a point (he’s certainly got one hell of a home entertainment system …) but the other two not only don’t know the relevant laws, they’re actually complaining that their qualified, expert, paid advisor is telling them why it won’t work. Totally barking.

And just going back to costs again, I was challenged today on why I need to spend any more than £50 a month for a simple business model and can’t I see I’m being ripped off when his high street guy does all he needs doing. Fine, I replied, just ask him about a few contractor-related basics, such as what is the definition of a PSC, what’s IR35 and how it is assessed, what is the tax treatment of training to expand your skill set, how to correctly answer the questions on the P35 and why, and why he isn’t an MSC. He may well know all the answers, in which case well done him, but I know more than a few ACCAs who don’t.

As Red Adair said, “If you think a professional is expensive, wait till you hire an amateur”.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Cartoon Man by TheNickster

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Why I dislike this government quite so much…

So our Beloved Leader has finally allowed us an election. Good news on several fronts. I make no secret of my desire to see the end of the current Parliament in general and our sitting PM in particular. But before we all get drowned in claim and counter claim about who is best suited to lead us out of the crisis we find ourselves in, I thought I might just remind people why I, as a humble one-man-band contractor, dislike this government quite so much.

Firstly, the iniquitous IR35. Brought in by someone who refused to pay a legally imposed tax to address a problem that didn’t exist and so badly framed only a court could decide if it applied to you or not. So you buy insurances and pay for contract reviews and live in uncertainty, or you go use an umbrella and pay a load of taxes you almost certainly don’t actually owe. Meant to bring in £400m a year, it actually generates around £1.5m. Brilliant work chaps.

Then they killed off MSCs. Not a thing that bothered me, to be honest, but I know of people who were trading perfectly correctly through them who had to shift to a different model.

Then we had the Arctic case, trying to apply the clearly defined S660a legislation to a situation it was never meant to cover and which, in fact, was positively endorsed in the House (by a Tory chancellor as it happens…).

Then when they lost that one they immediately produced the fully-formed Family Business Tax (or Income Splitting, as they termed it). That has never actually gone away, but at least the lobbyists were able to demonstrate just how poorly thought out and generally unworkably ridiculous the whole idea was. So that never saw the light of day, thank God and the PCG. The latest one is the Agency Workers Directive, another piece of EU-inspired nonsense that has a genuine purpose at heart but once again is so badly enacted you still won’t know for certain if it applies to you.

And underpinning that catalogue on ineptitude is the constant failure to distinguish between avoidance and evasion (hint: only one of them is illegal, Gordon), the joyous embracing of selling our IT industry abroad by failing to manage the abuse of the ICT system, the wholly unacceptable retrospective change behind BN66 and a raft of smaller but equally rubbish rules and regulations that blight your working life.

So all in all, I hope never again to hear a dour Scots voice telling me all this grief is in the interests of fairness. It isn’t, it’s in the interests of a discredited socialist agenda that’s wrecked the country and cost me a lot of money for no benefit whatsoever.

So farewell, New Labour. Whoever or whatever replaces you, at least the only possible direction is upwards.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: mixed.emotions.sketch by NET9

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I’m a contractor, not a managed service company…right?

Probably. The rather circular definition of a Managed Service Company is one that is provided by a Managed Service Provider. Since these were effectively outlawed in 2007, it is important to understand how they are defined.

MSCs were a way to operate an independent business with minimal involvement in its day-to-day running. The provider would set up a composite company in which you would have a shareholding usually in the form of a unique class of shares in your name. You would be paid in direct proportion to the work you did and hence the income you generated. The provider would handle all the billing, payment and taxation activities on your behalf.

However, HMRC decided, with what some might say was justification, that operating in such a way was more to do with saving tax and NICs than it was to do with running a business. They closed down MSCs by ensuring that they only paid their workers through conventional PAYE/NIC, not through dividends: in effect they became more akin to umbrella companies.

The difference between using an MSC and using an accountant to manage your affairs is therefore important. A Contractor Accountant is in fact defined specifically in the rules. They cannot be an MSC Provider as long as they do not do any of the following activities:

  • benefit financially on an ongoing basis from the provision of the services of the individual,
  • influence or control the provision of those services,
  • influence or control the way in which payments to the individual (or associates of the individual) are made,
  • influence or control the company’s finances or any of its activities, or
  • give or promote an undertaking to make good any tax loss.

So as long as you are the one whose name is on the chequebook and decide what cheques to sign, you cannot be an MSC.

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Split Personality by Shaun Allen

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