Contractors still unsure about MSC rules

Manchester, UK - One in seven contractors are at risk following Managed Service Company (MSC) legislation 18 months after it was introduced, a recent survey out by  accountancy, tax and support services firm Brookson has found. The poll of 700 UK professional contractors found many still unsure of the implications of the legislation and their personal compliance status.

Under MSC legislation, which was introduced in April 2007, all payments received by a worker working through a MSC to be employment income. This means that PAYE must be applied to all income received by individuals in MSCs in relation to their services provided through the MSC. The legislation applies whatever the form through which the worker receives their remuneration.

Less than a quarter of the respondents were confident that they were operating within the regulations, the survey revealed. And while 61% of professional freelancers understood what the government wanted to achieve with the new legislation, 99% felt that it was not handled very well with over a third saying that it has been done at the detriment of genuine contractors.

“I have tremendous sympathy for contractors," said Martin Hesketh, MD at Brookson. "Working in an environment  proliferated by complicated legal and compliance regulations must feel like walking on eggshells for most of them. At the end of the day, whilst these are highly qualified professionals, they are engineers, healthcare workers and IT professionals - not lawyers or accountants.

Hesketh is not surprised that so many people still can’t make sense of it all, but adds that they should take professional advice: ” Contractors have four potential options of working, however the ‘right’ choice will vary from individual to individual dependent upon their personal and professional circumstances: Agency payroll (PAYE); Umbrella companies; Sole trader; Own limited company.

"Each contractor should take regular, tailored advice from a reputable accountancy services business to understand which option is most appropriate for them, and the risks and responsibilities associated with each. The cost of getting it wrong could prove to be very expensive indeed. A key factor in determining the best way of working is whether the contractor is genuinely “in business on their own account” or not." he said.

"Put simply, if an individual is not in business on their own account, options 1 or 2 are likely to be the most appropriate. If an individual is in “business on their own account,” potentially option 3 or 4 will be the more appropriate option," the MD concluded.