Managed or Composite companies the writing is on the wall

Are you in a managed or composite company?

Have you heard that the Revenue are about to remove all tax breaks for them?

Are you already feeling the squeeze on expenses?

Do you want to find a professional quality solution?

Managed service companies that pay out typically minimum wage salaries to their ‘employees’, together with dividends to the ‘shareholders’ aligned with dubious expenses are now going to be hauled over the coals and brought into line with the rest of normal PAYE.

How does this affect you as a contractor?

• It could be the case that the firm stance by the Revenue could lead to ‘deemed employment’ by your composite company/umbrella in the consultation notes it states “Agency workers are entitled to core rights including health and safety, and social guarantees such as maternity pay”

• If contractors continue to trade under MSC’s then they will not be able to state that the engagement is one of self-employment and they will therefore fall within IR35

• This will therefore render all dividend income as salary

• Expenses will be monitored correctly and therefore any dispensations will be amended, which you may be feeling the affect of now already

• Overall you will feel the full force of being within IR35 and having no control over your income at all

How does this affect you as an Agency?

• It could be the case that the firm stance by the Revenue could lead to ‘deemed employment’ by you as the agency because in the consultation notes it states “Agency workers are entitled to core rights including health and safety, and social guarantees such as maternity pay” this could result in a contractor being deemed a direct employee of your company

• This could lead to employment disputes, employee claims for benefits and overall a higher cost that will almost certainly erode your profit margins

What is likely to change:

• These companies will no longer be able to pay out dividends to their ‘shareholders’, which may have done on a weekly and monthly basis – this income will now be deemed salary and full tax and NI will be charged on this

• Ongoing income will have to paid as salary to ensure all correct tax and NI is paid

• Only genuine allowable expenses can be claimed (so gone are the days of dubious ‘dispensation schemes’)

This in essence, using HMRC’s words ‘levels the playing field to prevent them gaining an unfair advantage over compliant businesses’. This will also result in probable closures of these facilities post February 2007 and there is every chance that they will close at will without any priority being given to the employees!! (which we have seen before)

How does this affect quality contractors?

• Personal services companies (Limited companies) will not be attacked and can continue to trade outside IR35 (if applicable) and these services will remain as strong as ever.

How does this affect our services?

We will not have to change anything at all, we offer professional accountancy services which is exactly what HMRC want to see happening because we adhere to a strict code of conduct as do you which requires good service and correct advice. The Revenue want to see quality freelance workers and contractors using the services of professionals rather than signing up to something that seems ‘to good to be true’.

Dates to remember:

February 2007 the Finance Act (this will start the ball rolling on these changes)
April 6th 2007 is when some of the changes will come into force

If you are currently trading outside of IR35 and using a managed company service or composite company then we would be delighted to advise you on what you can do now.

You will probably be amazed by the quality of service/advice and fees structures we have to ensure the best result for you in the open market delivered by the best in the business.

For general enquiries:
info@accountants4contractors.com