MSC
Oh dear, yet more legislation that is a concern to contractors choosing their payment options. Don’t worry, we ensure that everything we do complies with all the bits of the law and makes the business of getting paid much less murky. But for those of you who are inquisitive and want to know the ins and outs, read on….
The background to this legislation is that for a long time, people have been taking advantage of the financial benefits of being paid by company profits. From a contractor perspective, this means being a shareholder of a company that receives money from your client (usually with a recruitment company in the middle).
In Budget 2007 the UK Government challenged this way of working, now called Managed Service Companies (MSCs), and launched this new piece of legislation, designed to restrict contractors in their potential to gain increased take home pay through limited companies.
It was common place before this time for contractors to receive payment via dividends from a company rather than as employment income under deduction of PAYE, without the responsibilities of managing and running a company – these companies are widely referred to as Composite Companies and are now illegal.
The legislation was written very broadly, meaning a worker providing services through a personal service company who receivespayments by way of dividends but is not fully in control of that company would be in danger of being caught by the legislation.
The legislation also targets providers of these companies (that’s us!) and the Government can transfer any debt through unpaid taxes to third parties, including MSC providers and parties that have actively encouraged their use. So, it’s in your interest, our interest, and the interest of your agency for us all to get this right.
How does this affect you?
If you’re thinking about running your own limited company (in contracting, commonly known as Personal Service Company or PSC), you need to make sure you’re fully aware of what is involved and the responsibility that you have to that limited company. Most Directors of companies would be expected to use the services of an accountant or legal adviser, but it is important to ensure that these professionals are only responding to the requests of you as the director, not running it or managing it on the Director’s behalf. Additionally, they should not be involved in making payments to the Director, from his own company; that needs to be your responsibility too.
To summarise, before deciding to incorporate a limited company, you should be fully aware of the responsibilities of a Director. You should ensure that you open a business bank account for the company, and you should be the only signatory of it. You should be responsible for making all payments on behalf of the company, and should be the controlling Director of it. You should keep full records of all your company’s transactions and should personally sign any contracts that your company enters into.
The good news is that your psc is the accountancy practice that will support you with all of this. Part of our services is to remove the administrative burden for a realistic and competitive price. Check out your psc services for more information, and our Guide to Running a Limited Company.
One more thing – you don’t just have to take our word for it. We’ve been audited by the industry regulators in the area of contractor services – take a look at our accreditations for further information.
