IR35 and Managed Service Company (MSC) Legislation

IR35:
Whether you're new to contracting or you've been around for a while, you could not have escaped hearing about IR35. IR35 was announced in the March 1999 Budget and came into effect from 6 April 2000.

IR35 is a fundamental issue which you will need to consider at the very start of your contracting career and every time you accept a contract.

The IR35 rules seek to determine the circumstances under which a contractor should be treated as ‘self employed’ or ‘employed’ for tax purposes. If deemed ‘outside’ of IR35, a contractor is viewed as self employed and can be subject to business levels of tax. If ‘inside’ IR35, they should pay employee levels of tax which can be considerably higher.

Below are some recommended guidelines for what you should include in your contract:

• The contract is to be made out to the Limited Company not to an individual. 
• The contract is signed by the Director or authorised representative of the company. 
• There is an end date and / or information explaining the termination clauses.
• The contract has a substitution clause. This allows the company to send any approved consultant representing it to do the work – it does not have to be the director / person who signs the contract. (This is very important with regards to IR35.)
• The Limited Company is solely responsible for paying all of the correct taxes.
• There are clauses relating to liability and the responsibility for the company to provide the necessary insurances. 
• There are clauses relating to the possibility of the company having to provide its own equipment.

If you have any further questions or would like to find out if your contract is compliant please contact a solicitor. Please note that the points made here are guidelines only.

Managed Service Company Legislation:
The July 2007 HMRC guidance notes state that a firm of accountants carrying on business as accountants, are not caught by the legislation as they fall outside the definition of an MSC Provider. 

1st Contact Accounting is regulated by the Institute of Chartered Accountants of England & Wales and recently instructed Tax Counsel Rupert Baldry of Pump Court Tax Chambers to give an opinion in the matter of managed service companies and 1st Contact. Mr Baldry is a highly respected Tax Counsel who was, for example, selected by HM Revenue & Customs to represent them in the House of Lords in the recent Arctic Systems case. 

Mr Baldry’s opinion of 1CA’s current business and processes is that they should fall within this accountancy exemption.