Budget (6): Should contractors beware? - Qdos

A couple of lines in the Budget documentation have signalled that 'managed service company schemes' will be reviewed as the Chancellor linked them with his mantra to ensure 'everyone pays their fair share of tax'.

Carl Whittaker from Qdos Consulting reads between the lines:

Whilst the highlights of this Budget didn't give contractors any more cause for concern than most, there are promises of hidden dangers to come in the section named 'Building a Fairer Britain'!

Paragraph 5.86 says:

• '..further evidence has emerged that employment income is being disguised as dividends in order to take advantage of the small companies' tax rate, often encouraged by promoters of mass-marketed managed service company schemes. There is also evidence of some agencies, contractors and employers requiring workers to use corporate structures, thereby denying them employment rights as well as avoiding paying their fair share of tax and NICs. The Government believes that all individuals and businesses must pay their fair share of NICs and tax, irrespective of legal form. It will continue to review the tax and NICs systems to ensure that this is the case and will bring forward proposals for discussion that are consistent with simplicity for compliant businesses, support for businesses in their aspirations to grow and maintaining the attractiveness of the UK as a business location. As the first stage of this review the Government will consult on action to tackle disguised employment through managed service company schemes.'

All contractors should take note of this as it is clear that HMRC are to continue to pursue service companies. It is particularly evident that the main attack is to be against 'managed service companies'. It does seem that the emphasis is on the word 'managed' and so the attack may well be aimed at the umbrella and composite arrangements.

The comfort is that HMRC are to consult and so the contractors and their accountants may have some input on the new tax rules, and also they will not be implemented in the near future.

We await some guidance from the Treasury regarding the time scale of the consultation and the target date for implementation. We will of course follow this new proposal carefully and publish regular updates on the progress of the consultation, details of the proposed new legislation and also the target date for their implementation.

Carl Whittaker

Qdos Consulting