Most people in the Contractor/Freelancer sector will now be aware that the Budget announcement significantly changed the way that HMRC will be ‘Tackling Managed Service Companies’ from the draft legislation in December 2006.

‘Control’ and ‘who exercises control’ were the main areas of debate from the draft legislation. The Budget announcement shows that HMRC are now intending to ‘focus more on the business of the MSC’ and less on the question of control.

Providers of legal and accountancy advice are specifically excluded from the MSC legislation. Both Personal Service Companies (PSC) and Umbrella Companies (based on PAYE rather than dividends) are also not covered by the MSC legislation.

Danbro provides a PAYE Umbrella solution as well as accountancy services to contractors who have their own Personal Service Companies. Danbro is an accountancy practice governed by the Institute of Chartered Management Accountants. As such, none of the solutions that Danbro offers will be subject to the MSC legislation after 6 April 2007.

More information on Managed Service Companies – beware.

As the Budget changed the draft legislation dramatically, please find below the revised definition of what an MSC is and advice on what to look for in your accountancy provider -

Chapter 9 of the revised legislation states that a company is an MSC if:

1. Its business consists wholly or mainly of providing (directly or indirectly) the services of an individual to other persons.
   

2. Payments are made (directly or indirectly) to the individual (or associate of the individual) of an amount equal to the greater part or all of the consideration for the provision of the services.
   

3. The way which those payments are made would result in the individual (or associates) receiving payments of an amount (net of tax and national insurance) exceeding that which would be received (net of tax and national insurance) if every payment in respect of the services were employment income for the individual, and
   

4. A person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals (a MSC provider) is involved with the company.

A MSC provider is ‘involved with the company’ the MSC provider or associate of the MSC provider

1. benefits financially on an ongoing basis for the provision of the services of the individual

2. influences or controls the provision of those services

3. influences or controls the way in which payments to the individual (or associates of the individual) are made
   

4. influences or controls the company’s finances or any profits activities or

5. gives or promotes undertaking to make good any tax loss.
   

Attributes of a compliant accountancy service provider for your PSC may be:

• that they are operating as a normal accountancy practice, which is governed by an Institute.
  

• that they are not promoting any schemes to make good tax losses.
  

• that the fees charged by the accountancy practice are not a percentage of income, but are the agreed normal fee for accountancy and taxation services.

• that the bank account of the PSC is portable and controlled by the Director of the Company.

• that the PSC is controlled and managed by the Director of the Company.