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HMRC are concerned at the growing number of intermediary companies marketed to individuals for the provision of their services to clients since the introduction in April 2007 of the managed service company legislation (ITEPA 2003, Part 2 Chapter 9).
Many of these companies claim that they are not managed service companies (MSCs), usually on the basis that the provider of the intermediary is an officer or partner of the intermediary and that, as there is no separate managed service company provider, the MSC legislation does not apply.
Having taken counsel's advice, the Revenue has concluded that being an officer or partner in a service company does not preclude that person from being an MSC provider.
They consider that companies and partnerships which otherwise fall within the relevant legislation, but claim not to be MSCs because the provider is an officer/partner of the intermediary, are in fact MSCs.
HMRC intend to look for suitable cases to investigate and, where appropriate, challenge and litigate.
The department is aware that some service providers claim to be in receipt of counsel's opinion that their particular intermediary does not fall within the MSC legislation, but such opinions do not alter the taxman's view.
Where the Revenue successfully challenges a company as being within the MSC legislation, and that company is unable to pay the resultant PAYE and National Insurance debt, HMRC will invoke the transfer of debt provisions.
Companies providing their services through companies based outside the UK should not assume that this fact alone exempts their company from the legislation and them from the consequences of non-compliance, said HMRC.
If the provider and their associates are based outside of the UK tax jurisdiction, then the persons most at risk are individual workers based in the UK.
The Revenue is also concerned about the growth in intermediary companies marketed to individuals for the provision of their services to clients in the construction sector.
These companies interpose themselves between the worker and payer so enabling the worker to claim to have 'self-employed' status.
Irrespective of whether the intermediary is or is not a managed service company, payers (including employment businesses and main contractors) need to understand the specific construction industry scheme issues which must be considered when paying an intermediary.
Such intermediaries invariably have gross payment status under the construction industry scheme and those who pay such intermediaries are determining the intermediary's CIS status and paying them accordingly.
Depending on the contractual relationship between the parties and the true nature of the services provided, the intermediary may not be a contractor within the meaning of CIS legislation; instead it may be a nominee of the worker. In this case, both the intermediary and the worker must have gross payment status in order for payments to be made gross.
'HMRC are continuing to try to crack down on the use of managed service companies, which they view as unacceptable tax planning,' said Grant Thornton's Francesca Lagerberg.
She added, however, that the Revenue's article is not clear about what it is trying to achieve and it 'will certainly not be in a format that will be readily understandable to many of those who might be tempted into a MSC structure'.
Ms Lagerberg said she hopes that HMRC will follow up the article with some further clarification.
