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A series of regulations have been published, which support the Government's initiative to tackle avoidance of income tax and NICs through the use of managed service companies (MSCs).

In December 2006 the Government published a Consultation Document entitled Tackling Managed Service Companies, which covered the perceived problem of workers seeking to avoid employed levels of income tax and National Insurance Contributions (NICs) by providing their services through Managed Service Companies (MSCs), so enabling employment income to be drawn as dividends. The Consultation Document highlighted the fact that where HMRC had successfully taken action against such companies using ITEPA 2003, Chapter 8, they invariably had been unable to recover the resultant PAYE and NICs because such companies have no assets.

A further Consultation Document entitled Managed Service Companies Transfer of PAYE and National Insurance contributions, was published in February 2007 which made clear that in addition to legislation to ensure MSCs operate PAYE (and Class 1 NICs), legislation would be introduced to ensure that should such companies fail to pay the resultant PAYE (and NICs) due, debts could be transferred to certain persons. These are either persons directly involved with the company, or persons who have encouraged the use of the company or who have been actively involved in the worker’s provision of their services through the company.

The Regulations now published do not create PAYE debts. Debts will continue to arise by virtue of one of the existing provisions within the Income Tax (Pay as You Earn) Regulations 2003.

The regulations are:

• The Income Tax (Pay As You Earn) (Amendment) Regulations 2007 (SI 2007/2069);
• The Social Security (Contributions) (Amendment No. 5) Regulations 2007 (SI 2007/2068);
• The Social Security Contributions and Benefits Act 1992 (Modification of Section 4A) Order 2007 (SI 2007/2071); and
• The Social Security Contributions and Benefits (Northern Ireland) Act 1992 (Modification of Section 4A) Order 2007 (SI 2007/2072).

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