Contractors OK to work through their own limited company

Despite what contractors may have read or been told by some providers - there is no problem whatsoever with working through their own limited companyís.

Managed Service Company / Composite providers have been heavily impacted by new rules laid down by HM Revenue and Customs after the April Budget. This change in legislation has seen huge numbers of contractors moving to work through their own limited companies and using more traditional professionally qualified and regulated accountants.

However, in an effort to stem the flow of clients leaving, some of the old MSC/Composite providers are now telling clients that genuine accountants are in the same boat as them, which after reading the legislation is patently untrue.

SJD Accountancy a leading firm of contractor specialist accountants, have had discussions with HM Revenue and Customs and have had confirmed from them, in writing (see below quotes), that genuine accountancy firms such as SJD are not impacted in the least by the latest MSC regulations:


*An accountant running an accountancy practice, providing services recognised by the accountancy regulatory bodies, would not fulfil the dual criteria in section 61B(1)(d) (this is the piece of legislation that has forced composite/MSC providers to either cease trading or switch to providing umbrella services) and is therefore outside the legislation, even where a sizeable proportion of the client base are service companies.

* The legislation seeks to distinguish between an accountant in the business of being an accountant, providing accountancy services, and an MSC provider, in the business of being an MSC provider (who may have accountants on the payroll) who provides services beyond those recognised as accountancy services. This simply means accountants who are, and have always been in, the business of providing traditional and professionally regulated accountancy services, are totally unaffected by the legislation.

And from the legislation itself:

The following are not an MSC Provider by virtue of the activity described:

1. A firm of accountants carrying on a business of being accountants (irrespective of the percentage of the client base which is individuals operating through service companies)

2. A Tax Adviser carrying on the business of being a Tax Adviser generally

The legislation has been bought in to clamp down on:

1. Composite companies, which set up nothing more than artificial companies with numerous directors, all of whom operate through the same company to avoid IR35 legislation and operate through clever tax loopholes.

2. Also managed service companies - whereby the contractorsí limited company is totally outsourced and managed by a third party, typically the contractor doesnít even have access to their own business bank account.

This all means it is totally safe for contractors to operate through their own limited company and should not fear doing so, despite what they may have heard.

If you are concerned or would like further information we suggest you speak to a qualified and professionally regulated accountant.