The taxman has warned service companies that just because they are offshore
does not mean they are exempt from legislation designed to crack down on them.
As part of HM Revenue & Customs’ ongoing monitoring of new managed
service company tax legislation, which intends to stop workers within such
businesses dodging their tax and NICs liabilities, it has found a number of
offshore providers claiming to be exempt from the rules.
Offshore businesses providing the services of workers to UK clients are
claiming their arrangements fall outside of the tax rules.
HMRC says that claiming MSC tax rules do not apply to companies registered
overseas is ‘misleading’. Where the worker is resident in the UK and the work is
carried out in the UK, the intermediary is treated as having a place of business
in the UK.
However, HMRC does not say that the offshore arrangements are necessarily
dodging tax by being overseas, but relying on being abroad is not enough to be
Anne Redston, chair of the personal tax committe at the CIoT, agreed with the
taxman. She said: ‘If they say that because they are offshore they are not
caught [under tax rules], they’re wrong.
‘Even if the administration [is abroad] you still have to pay tax.’
The taxman also notes that the marketing of service providers on the
internet, claiming to save workers’ NICs, suggests those providers fall under
the tax rules.
It warns that where HMRC cannot recover tax and NICs from the workers or service
providers, it will use its powers to transfer the debt.
The debt can be transferred to any person who has directly or indirectly
encouraged or been involved in the MSC’s provision of services.
HMRC admits that this rule has led to some recruitment businesses refusing to
deal with service providers.
While recruitment companies should mitigate their exposure to the transfer of
debt provisions, HMRC says the legislation was not introduced to stop those
‘genuinely in business’ providing their services through service companies.
Guidance has been issued to recruitment businesses to help them take a ‘balanced
view’ of the risk they face under the debt transfer provisions.
Putting together the legislation has proved a pain for the taxman, which has
struggled to find a way to create rules to define exactly what is a managed
service company provider, and make sure innocent parties are not caught within
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