Managed Service Companies (MSC), Composite Companies and Third Party Debt Legislation

Despite what you may have read or been told by some providers, there is no problem what so ever with working through your own limited company.

We have taken our own professional legal advice and are very comfortable that we are not caught by the new legislation.

Composite/MSC providers have been heavily impacted by the new rules and we have heard that these companies are now telling clients that genuine accountants are in the same boat as them, which is patently untrue.

Additionally, we have had discussions with HMRC and have had confirmed from them, in writing (see below), that genuine accountancy firms such as SJD are not impacted in the least by the latest MSC regulations as we:

1. are a firm of accountants carrying on a business of being accountants;
2. offer professional advice as chartered tax advisers and accountants and are regulated by the Chartered Institute of Taxation;
3. offer tailored advice and services to our clients and we are not involved with the running of our client's companies.

Extract is taken from the e-mail received by SJD Accountancy from HMRC:

*An accountant running an accountancy practice, providing services recognised by the accountancy regulatory bodies, would not fulfil the dual criteria in section 61B(1)(d) (this is the piece of legislation that has forced composite/MSC providers to either cease trading or switch to providing umbrella services) and is therefore outside the legislation, even where a sizeable proportion of the client base are service companies (on the whole contractors come under the term of ‘service companies’, SJD is the UK’s largest provider of fixed fee accountancy services to contractor clients).

* The legislation seeks to distinguish between an accountant in the business of being an accountant, providing accountancy services, and an MSC provider, in the business of being an MSC provider (who may have accountants on the payroll) who provides services beyond those recognised as accountancy services. This simply means accountants such as SJD who are, and have always been, in the business of providing traditional and professionally regulated accountancy services, are totally unaffected by the legislation.

And from the legislation itself:

"The following are not an MSC Provider by virtue of the activity described:

1. A firm of accountants carrying on a business of being accountants (irrespective of the percentage of the client base which is individuals operating through service companies)
2. A Tax Adviser carrying on the business of being a Tax Adviser generally"

The legislation has been brought in to clamp down on:

1. Composite companies, which set up nothing more than artificial companies with numerous directors, all of whom operate through the same company to avoid IR35 legislation and operate through clever tax loopholes.
2. Also managed service companies - whereby the contractors’ limited company is totally outsourced and managed by a third party, typically the contractor doesn’t even have access to their own business bank account.

All of the above means it is totally safe and proper to operate through your own limited company, despite what certain companies may be telling you.