MSC opinion from Jake Reinders, director at Consultant Technologies Ltd

What Brown’s MSC Proposal Means to Consultant Technologies

Several of our employees have raised concerns regarding Chancellor Brown’s proposed legislation aimed at attacking the Managed Service Company (MSC, aka composite company) business structure, specifically what effect that might have on the income of Consultant Technologies employees.

The answer is simple: none.

Consultant Technologies are an equal opportunity employer of IT contractors. We are neither a composite nor a managed service company. Truth told, we’re not actually an umbrella company either.

Next question: But isn’t that pretty much the same line that all the composites are taking, too? Most have released a statement to the effect, “We welcome this move by government. It’s business as usual for us; we remain compliant.”

Since we are all affected by the Brown proposal in some way—contractors, recruitment agencies, and clients alike—we asked for an independent report from Graham Busch, senior partner at Lawrence Grant, Chartered Accountants (www.lawrencegrant.co.uk). This highly respected Middlesex firm, a member of the Geneva Group International, have been consulting on finance and legislative matters in the U.K. since 1969, offering unparalleled advice and service to clients across the business spectrum and on an international level.

Following is a summary and excerpts of their findings, as well as a link to their full MSC report.

The 2006 Pre-Budget Report: The Taxman Attacks Managed Service Companies

The Lawrence Grant, Chartered Accountants report provides a brief history of the sustained attack of HMRC on IT consultants over the past 6-7 years in the form of IR35 legislation, the shift from “one-man” companies to composite service companies, and the practice of consultants receiving dividend payments to avoid paying nearly 25% of their income to National Insurance Contributions (NICs).

The report offers a definition of an MSC, as outlined in the Chancellor’s Pre-Budget report of 6 December 2006, and points out the Revenue’s three-pronged attack of such companies, specifically the subjecting of a contractor’s entire non-expensable contract income to Pay As You Earn (PAYE) and NICs, the elimination of deductions for many currently claimed individual expenses, and the collection of debts from associates of an MSC, should that company be unable to pay said debts.

MSCs are expected to become extinct as of 6 April 2007, and the report advises contractors to find a consultancy company that will not be classified as an MSC.

So what is a non-MSC? According to the Lawrence Grant, Chartered Accountants report:

“A company which does not run or operate numbers of “sham” managed companies set-up solely for the purpose of avoiding tax. A bona fide employment company, providing a bona fide employment environment to contractors with many added benefits. A company which employs its contractors on a full-time permanent basis. A company which operates a proper and compliant PAYE scheme for all its employees. A company which does not run a “dividend-for salary” scheme of the kind which IR35 and the proposed legislation vigorously attack. A company providing full employee benefits, such as a pension scheme, sick leave, paid leave, maternity/paternity pay, etc. A company providing a company mobile phone, computer hardware/software as needed, re-imbursement of expenses and full employee rights under the law. A company providing employee loans, references, training and skill enhancement programmes. A company which does not run a network of managed service companies – a company which is one company and one company only…The way forward for contractors is to align themselves to reputable consultancy companies who will provide a proper yet pro-active employment environment.

We believe that Consultant Technologies Ltd is such a company.”

Summary and excerpts reproduced here with permission.

Consultant Technologies affirms our confidence in the legitimacy and legal compliance of our business structure, asserts our disassociation with the targets of the proposed MSC legislation, and reaffirms our commitment to providing our present and future employees, as well as our agency partners, with superior personal administrative service, exceptional corporate benefits, flexible and innovative solutions, and fully compliant tax and payroll structures, supported by the independent advice of the industry’s leading accountancy and corporate governance consultants.

For more information, please visit www.consultant-tech.co.uk

Jake Reinders
Director
Consultant Technologies Ltd
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