The Institute of Chartered Accountants of Scotland (ICAS) has called on HM Treasury to ensure that the proposed new legislation to combat tax avoidance by 'managed service companies' should be narrowly focused on those guilty of abuse.

In its written response to the consultative document 'Tackling Managed Service Companies', published jointly by the Treasury and HM Revenue & Customs, ICAS says it supports the Government in its aim of discouraging artificial tax planning by businesses seeking to exploit the laws on employment status. It also agrees with the move to combat flagrant non-compliance by companies which deliberately cease to exist leaving unpaid tax and national insurance liabilities.

However, ICAS has expressed concern that the proposals add additional complexity and uncertainty to an already unwieldy tax system.

John Cairns, Convener of the ICAS Corporate Tax Sub-Committee, said:

"The Government is entitled to combat employment arrangements that have been designed solely to produce savings in income tax and national insurance contributions. However, we are concerned that the proposals may adversely affect existing service companies established for sound commercial reasons with no particular focus on tax savings."

"We are also calling on the Government to put off applying the new provisions for a further year, to allow innocent businesses and individual workers time to rearrange their affairs. Otherwise, the new rules will penalise those for whom they were not intended."

ICAS advocates caution on the use of complicated anti avoidance provisions, which in other cases have contributed to making the tax regime unworkable, and points out that these new proposals demonstrate the failure of the IR35 intermediaries legislation that was introduced in 2000.