Contractors warned of impending tax change
12th February 2007

As a result of new tax legislation, due to be introduced in April, freelance workers who supply services through a managed services company (MSC) will need to change how they do business or face higher taxes, say Bradford Chartered Accountants, Naylor Wintersgill.

By enforcing the taxation changes, which come into effect on April 6th, the Treasury aims to clamp down on what it refers to as ‘disguised employment’ by contractors using MSCs to avoid paying the level of National Insurance Contributions (NICs) and PAYE paid by those in full time employment.

MSCs are intermediary companies through which the services of a contractor are provided to a client and the contractor is paid a combination of wages and dividends. From April, contractors working in sectors including IT, construction and engineering, and who operate through a MSC will be required to pay NICs and PAYE on the full combined wage and dividend payment that they receive.

The Treasury estimates that it will be able to recover £350m through the changes, which will affect over 250,000 workers.

Howard Richardson, Partner at Naylor Wintersgill, comments,

‘In light of the new legislation we would urge contractors using MSCs to seek professional advice and consider alternatives to a MSC.’