Compromise expected on managed service companies

As ContractorCalculator Newscasts reported previously, industry sources now say that a compromise is possible on managed service companies. The Times also reported on 12th March that change was possible in the Treasury's position.

Six Month Delay

The Treasury is reportedly considering a six-month delay before applying rules regarding managed service companies' tax debt. This delay will probably be applied specificially to the provision that companies who work with manged service companies - agencies, recruiters, and such - are to be held liable for tax debts owed by managed service companies.

There have been urgent requests for more clarity by a number of representative organisations, including the Institute of Chartered Accountants.

Potential for Client Liability

''There is the potential that a client, the end-user, could wind up liable for tax debt owed by a managed service company that the client had hired from a list provided by an agency. Further guidance to make all this clearer would be welcome," says Michael Moore, a partner with the accounting and consulting firm Deloitte & Touche in London.

More Pragmatic Approach

Although the legislation is expected to stick to the Government’s policy of cracking down on freelancers who do not pay tax, it is understood that it will reflect a more pragmatic approach, according to The Times today.

Scores of Protests

It is understood that Gordon Brown has heard submissions from the financial and support services industries protesting that the proposed law could render third parties liable for contractors’ tax debts, The Times reported.

There is serious concern in the industry about how companies will be singled out for treatment. A managed service company does not differ in many respects from any small limited company. The issue is: how does the Treasury plan to draw the line? Wherever the line is drawn, the operators of managed services companies are likely to be careful to get on the right side of it,

A legitimate contractor, one who is outside of IR35, and one who has their own company, will simply change their working arrangements so that they can continue to enjoy the best tax treatment.

Move into Limited Companies

In fact, according to the several industry sources, all that the government has succeeded in doing under its current plans is to create a lot of paperwork as contractors organise themselves into proper limited companies. Industry sources say that the demand for these companies has grown very rapidly since the Treasury announcement.

Considerations of this kind on the part of Treasury officials are reportedly behind the prospective changes to the budget.

There has been a storm of complaint about these provisions. ''The government seems to prefer the obscure and difficult in tax legislation to the clear and simple,'' says David Colom, a principal with DJ Colom & Co., an accounting firm specialising in contractor affairs, in London