Current issues

Last updated 3 December 2008.

Service companies

This article, together with questions and answers, are being published in response to emerging developments in the Service Company sector and frequent questions posed to HM Revenue & Customs.

Last updated 29 April 2008.

HM Revenue & Customs (HMRC) has been made aware that there are arrangements being used/marketed which involve a service provider exercising an element of control or influence over their clients’ bank accounts. Where a service provider issues any instructions to a client company’s bank, even when on the written authority of the client, HMRC considers that that constitutes control/influence.

HMRC views any control/influence by a service provider over a client’s bank account as falling within sections 61B(2) (c) and (d), Chapter 9 Income Tax (Earnings and Pensions) Act 2003. Subject to other qualifying criteria applying, such activity will result in the service provider’s client companies being Managed Service Companies.

2007/08 P35: Question 6-meaning of “Service Company

Question 6 relating to service companies on this year’s for P35 Employers Annual Return has caused considerable confusion, for which we apologise.

Last updated 12 December 2007.

MSC Audit Standard

In developing an MSC Audit Standard, issues have arisen regarding the precise extent to which HMRC's legal powers permit such an Audit Standard.

HMRC will now consult external stakeholders to seek their views on the consequences of delaying, or not publishing at all, an MSC Audit Standard before deciding how best to proceed.

It is appreciated that this will be disappointing news for many who saw the MSC Audit Standard as providing a level of assurance. HMRC will continue to update guidance to provide as much clarity as possible regarding the MSC legislation and particularly the transfer of debt provisions.

Last updated 12 October 2007.

MSCs and the Recruitment Industry

HMRC and HMT continue to work closely with the recruitment industry to provide clarity regarding the MSC legislation.

HMRC and HMT officials have recently spoken at seminars organised by ATSCo and Lawspeed during which two important issues were clarified.

MSC Audit Standard

There are no plans for HMRC to provide an accreditation scheme for Service Providers. However, HMRC is actively considering the development of an Audit Standard. Such a Standard would be published on HMRC’s internet and would enable a suitably qualified person, not associated with the Service Provider, to review a Service Provider’s business model using the Audit Standard. This would determine whether the Service Provider’s client companies were MSCs or not. If such a review concluded that the companies were not MSCs, the Service Provider would be able to state that publicly.

The intention is that such an Audit Standard would provide legal certainty for Employment Businesses.

Officials emphasised that development proposals are at an early stage and there are a number of issues to resolve before a final decision is made.

Workseekers providing their services through companies

Provided that the Employment Business has not, since 6 April 2007, been directly or indirectly involved in the workseeker obtaining the company, then the Employment Business will not be liable for any PAYE or National Insurance debt under the transfer of debt provision should it subsequently transpire that the workseeker’s company is a Managed Service Company. In practice this situation is most likely to occur where a workseeker who already provides their services through a company approaches an Employment Business.

Where the Employment Business has, since 6 April 2007, been directly or indirectly involved in the workseeker obtaining the company, for example by virtue of referral of the workseeker to a Service Provider (a Preferred Supplier), then the Employment Business might potentially be liable for any PAYE or National Insurance debt under the transfer of debt provision.

Current guidance will be updated shortly. HMRC also proposes to publish further guidance in November to help Employment Businesses mitigate their risk where they use Preferred Supplier Lists.

Last Updated 29 August 2007

• Monitoring the effects of the legislation - As part of HMRC’s monitoring the effects of Chapter 9 ITEPA, letters will be issued shortly to those known Service Providers whom HMRC believes to be MSC Providers.