MSC law leads workers to re-evaluate tax status_2
10 September 2012
The turmoil over new legislation affecting contractors' use of managed service companies (MSCs) has led to large numbers of workers having to reassess their tax status for more than one reason, said B
The turmoil over new legislation affecting contractors' use of managed service companies (MSCs) has led to large numbers of workers having to reassess their tax status for more than one reason, said Barry Roback, chief executive of chartered accountants JSA Group.
Recruitment agencies faced with the prospect of third-party liability for taxes owed by their contractors are now taking a closer look at their workers' tax situations. And the ensuing scrutiny has revealed that workers such as nurses, lorry drivers, supply teachers and others were taking advantage of a tax benefit that they were never eligible for.
Under the seven-year-old IR35 legislation, workers must control and direct their own work in order to qualify for self-employed tax status, which allows them to receive dividends that are taxed at a lower rate. IT and construction workers are often used as examples of those who qualify for IR35 status.
However, workers such as supply teachers, nurses, cleaners and lorry drivers are among those who would not qualify because their work is not self-directed.
Roback told Recruiter he has seen an increase in the number of workers in the latter category who are seeking tax help from his business. Not only must these workers get their tax affairs in order to cope with fallout from the change in legislation affecting MSCs, they must also change their tax status from self- employed. Roback said the change in tax status also brings with it a probable rise in the tax they have to pay.
Roback believes the situation has been made worse by "some unscrupulous operators, who were applying it [IR35 status] to anyone who was a contractor."
Jonathan Hughes, managing director of the Atlantic Umbrella Company, is also seeing an upsurge in such customers. He estimates that "at least 25%" of his new business is coming from those categories of workers.
Hughes blames MSC scheme providers for misleading their customers. "They didn't understand the law," he said of the workers.
To the relief of most involved in the debacle over the legislation, Roback believes most of the turmoil is over. "Whether what we now have will be effective enough and clear enough and whether it will work is another question," he said.
"There are still some battles to be fought, but the Revenue [Her Majesty's Revenue & Customs] has apparently won the war," he concluded. "I suspect they'll still wish to fight a few battles just to show they meant it though."
Recruitment agencies faced with the prospect of third-party liability for taxes owed by their contractors are now taking a closer look at their workers' tax situations. And the ensuing scrutiny has revealed that workers such as nurses, lorry drivers, supply teachers and others were taking advantage of a tax benefit that they were never eligible for.
Under the seven-year-old IR35 legislation, workers must control and direct their own work in order to qualify for self-employed tax status, which allows them to receive dividends that are taxed at a lower rate. IT and construction workers are often used as examples of those who qualify for IR35 status.
However, workers such as supply teachers, nurses, cleaners and lorry drivers are among those who would not qualify because their work is not self-directed.
Roback told Recruiter he has seen an increase in the number of workers in the latter category who are seeking tax help from his business. Not only must these workers get their tax affairs in order to cope with fallout from the change in legislation affecting MSCs, they must also change their tax status from self- employed. Roback said the change in tax status also brings with it a probable rise in the tax they have to pay.
Roback believes the situation has been made worse by "some unscrupulous operators, who were applying it [IR35 status] to anyone who was a contractor."
Jonathan Hughes, managing director of the Atlantic Umbrella Company, is also seeing an upsurge in such customers. He estimates that "at least 25%" of his new business is coming from those categories of workers.
Hughes blames MSC scheme providers for misleading their customers. "They didn't understand the law," he said of the workers.
To the relief of most involved in the debacle over the legislation, Roback believes most of the turmoil is over. "Whether what we now have will be effective enough and clear enough and whether it will work is another question," he said.
"There are still some battles to be fought, but the Revenue [Her Majesty's Revenue & Customs] has apparently won the war," he concluded. "I suspect they'll still wish to fight a few battles just to show they meant it though."
