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PwC Welcomes Revised 'Managed Service Company' Rules

by Robert Lee,, London

29 March 2007

PricewaterhouseCoopers LLP has welcomed the announcement in last week's UK Budget of changes to the proposals concerning ‘managed service companies’ which were flagged up in the last pre-Budget Report and had caused major concern in the small business sector.

Managed service companies (MSCs) have been used to sidestep the controversial IR35 rules which impose PAYE & NIC charges on a personal service company where the owner/user works as a contractor for another organisation and is effectively an employee of the hirer.

Typically, MSCs consist of a composite company in which a framework allows a number of unrelated individuals to provide services to third parties; each individual holds shares in the composite company, and the dividends on those shares represent the earnings accruing to the composite company in respect of the individual's work. The Treasury's original proposals would have directly targeted the individuals working through such companies; after consultation, the revised proposals now target the promoters of the MSC.

John Whiting, tax partner at PricewaterhouseCoopers LLP, said:

“It is good to see that the Treasury has taken account of representations and is recasting the rules to target the scheme providers. That is a better route than targeting the companies and contractors; it should ensure that end-user clients and those who offer everyday professional services of administration and compliance are outside the net.”

“The IR35 rules have always been controversial but one can understand HMRC’s wish to level the playing field. There has been good consultation on the proposals and the signal of further discussions on the remaining details is the right way to go."

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