Accounting firm JSA defines status with contractor companies

Accounting firms have been much troubled by the recent managed service company legislation which risks putting them at risk in work with contractor companies.

Contractors who run their own companies seek advice from accountants. The new legislation specifically states that this is as it should be.

Legislation is Unclear

But accountants who actually run companies for contractors, thereby creating managed service companies, are now threatened both with higher taxes, and with liability for contractor tax debt.

But the text of the law is anything but clear, as the Institute for Chartered Accountants wrote in protest.

Panicky Pronouncements From Some Accountants

While the legislation could still be made clearer in committee in the coming weeks, accountants in the meantime are eager to define their roles with regard to contractors they work with. Some firms have come out with panicky pronouncements about their status.

JSA in Well-Reasoned Position Statement

So the industry welcomed a recent well-reasoned communique from the Watford-based JSA which defined that firm's position.

Says Barry Roback, chief executive officer of JSA:

'''While it is certainly true that just being a professional accountant will not necessarily provide the exemption from being classed as a managed service provider, as some of our competitors are claiming, JSA have spent a great deal of time and money determining our position. After consulting with leading tax counsel, specialist solicitors and many others within the industry, JSA are confident that our accountancy services do not fall within the meaning of an managed service company for the purposes of the proposed MSC legislation.''

Fees Do Not Vary With Client Income

Roback continues:

• a) JSA’s fees are fixed at the commencement of a years’ service and do not then vary according to our clients’ earnings.
• b) While JSA do of course provide advice and guidance as professional accountants and tax advisors, we do NOT directly influence or control our clients’ activities.
• c) JSA are NOT signatories to our clients’ company bank accounts, nor do we assume any statutory role within the company.
• d) We do NOT promote or undertake to make good any tax loss.
• e) JSA have been accountants, regulated by the Institute of Chartered Accountants in England & Wales

This approach makes a number of good points. First of all, the accountant who advises, and doesn't run a contractor company should not be affected by the legislation. Then, accountants shouldn't have access to contractor company bank accounts. Further, accountants shouldn't be guaranteeing your income against tax loss.

If your accountant doesn't do any of these things, you're may well be in the clear. But only some case law, after the Revenue begins to apply the new legislation will make the matter certain.

Still, JSA has provided the first researched approach to this fraught topic, and the industry should be grateful. Far too much rabid speculation has appeared elsewhere.

Roback concludes:

''While there can be no absolute certainty with new and as yet still draft and untested legislation, based on the advice received from our respected advisors (and indeed some of the statements now emanating from the Treasury and HMRC) JSA can continue to support our Limited Company clients’ activities as accountants, without fear of anyone falling foul of the managed service company legislation.''