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Most contractors not confident of Managed Service Company rules

Published on Nov 11, 2008 |

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A new survey suggests that less than a quarter of contractors polled felt confident that they were operating within the Managed Service Company rules.

The research carried out by service provider Brookson, also showed that 14% of contractors were still unsure of the implications of the controversial legislation and their personal compliance status - a full year and a half after its introduction.

Of the 700 contractors who took part in the poll, 61% said they understand what the Government wanted to achieve with the MSC rules, but unsurprisingly a massive 99% felt that the it had not been handled well - with over a third saying that it had been implemented at the detriment of genuine contractors.

Expert Comment

Brookson's MD, Martin Hesketh, said:

"I have tremendous sympathy for contractors. 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.

"As such, I'm not surprised that so many people still can't make sense of it all. Nevertheless, it is essential that they get to grips with it and take professional advice every step of the way - especially in light of the recent Dragonfly case which clearly demonstrated the risk contractors face."

Options for Contractors

The accountancy firm points out that contractors have four potential options of working, however the 'right' choice will vary from individual to individual dependent upon their personal and professional circumstances:

1. Agency payroll (PAYE)
2. Umbrella companies
3. Sole trader
4. Own limited company

Each contractor should take regular, tailored advice from a reputable contractor accountant 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 - especially important following the Dragonfly case. 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.