For MSC directors and MSC scheme providers the debt transfer provisions will take effect from 6th April 2007.

HMRC will pursue the following classes :
1st – Directors of the MSC – i.e. the contractor assuming most are now directors.
2nd – The Scheme Providers and any associates
3rd – The Agency, End-client & other parties (only after 6th Jan 2008)

A lot of contractors moved from composites to PSCs recently, however depending on the provider they choose they may need to consider if those arrangements are valid.

Treasury have altered the definition of an MSC and brought in new measures to tackle what they describe as mass marketed avoidance schemes.

Contractors that made their decisions based on the draft regulation may now be caught by the regulation and have full PAYE apply to their earnings.

In the draft legislation published in December of last year, the subject of “control” and who “exercises” it were key areas of debate. The government says that they are now intending to “focus more on the role and business of the MSC” and less on the question of control.

The Treasury yesterday outlined the following amendments/additions to the MSC legislation.

If a single company is identified as an MSC under the new law then it will apply to all limited companies made available by that provider.

So now it’s no longer a matter of whether the MSC has control, if your provider has “controlled” or “influenced” you or other contractors in ANY way then you will be caught under these new definitions. It will only take one individual to fail the definition for all contractors to pay full PAYE.

Scheme providers are banned from promoting or providing IR35 insurances. Scheme promoters can no longer mention IR35 insurance or indemnities when selling contractors potential solutions.

Scheme providers are banned from influencing or controlling any part of the limited company. Influencing is a wide definition. Similar to selling IR35 insurances, scheme providers should not have a bias or penalty that influences for example the contractors choice of business banking.

Providers of professional “legal and accountancy advice” are specifically excluded from the MSC legislation.

Umbrella companies (i.e. those based on PAYE and not dividends) or limited companies operating within IR35 are NOT covered by the MSC legislation.

Limited companies operating in side IR35 and paying a deemed salary.

As we predicted in previous news releases it is imperative that contractors now seek advice from qualified professional companies such as chartered accountants rather than those who were composite providers yesterday and are accountants today.

The recent 500% increase in company registrations was mainly due to composite providers (MSC’s) creating companies to transfer their contractor clients into, but Treasury have seen through this and have changed tack to focus on the small number of MSC providers rather than the thousands of individual companies.

If your provider is caught then you will be caught as well. Especially if your provider is offering or promoting some form of IR35 insurance or influencing who you bank with.

To make sure the legislation is impenetrable the regulations will be “adapted where necessary to reflect commercial developments”. This is one of the most aggressive approaches we have seen Treasury undertake and is further proof that they are prepared to react and counteract any attempts by scheme providers to circumvent the new rules.

The 3Sixty Group are a chartered accountancy practice specialising in providing professional advice to contractors.

We are holding a series of FREE contractor seminars nationwide designed to demystify what appears to be complicated legislation.