The Professional Contractors Group has submitted its response to the government's consultation on proposed measures to tackle managed service companies (MSCs).

While PCG accepts that the tax advantage offered by MSCs is "hard to defend" and believes the Treasury's attempts to close off this loophole are perfectly legitimate, the group believes that important changes are required before a workable measure can be achieved. PCG is calling for the introduction of the measure to be postponed by six months, as the proposed date would cause "a damaging and shambolic period of uncertainty".

Working within the present timescale, the legislation would come into force just two weeks after it is finalised, leaving large numbers of contractors, agencies and scheme providers with just days to understand the requirements and to take action.

In PCG's opinion, proposals for the provision to transfer debt need to be amended so that HM Revenue & Customs cannot chase workers for debts left by an MSC, and the group also believes that the new questions proposed for the P35 and self-assessment tax return "must be dropped" as they are "ambiguous" and "wholly inappropriate".

PCG chairman David Ramsden commented: "With these changes, we believe the measure will be workable; without them, it won't."

Mr Ramsden continued: "We must also express our disappointment that the government has sought to justify this measure with reference to disguised employment, which is totally irrelevant: this is a tax measure and will not extend employment rights to anybody."

His comments refer to paragraph 1.3 of the consultation document, which uses employment rights as a justification for the measure, stating that "workers are entering MSC schemes without understanding that they may be giving up employment rights".

PCG points out that, while that may well be the case, the document focuses on a tax measure and therefore has "no bearing whatsoever on disguised employment".

The consultation on MSCs is one of several official consultations to which PCG has responded in recent months and the group is confident about the potential of future reforms.

"The hopeless confusion around employment status in the UK is the root cause of tax measures such as this and IR35. By tackling this and clarifying employment law so that disguised employment is no longer possible, the government will be able to introduce the simplification that the tax system so desperately needs," Mr Ramsden concluded.

The Treasury launched its consultation into MSCs in December 2006 following Gordon Brown's announcement in the 2006 Budget that he intended to consult on ways to prevent workers from gaining an unfair competitive advantage through the schemes.

PCG's full response is available HEREA summary of the response is available HERE

PCG will be providing full reaction to the Budget on March 21st, including the announcement of the final proposals regarding MSCs.