The government has confirmed that its use of the Managed Service Companies (MSC) legislation to recover tax and National Insurance has escalated significantly in the past year.

Lawspeed submitted two Freedom of Information requests to HM Revenue and Customs (HMRC) and discovered that the number of enquiries alive at April 2012 was 216, but in the seven months to November 2012 the government commenced a further 644 enquiries.

142 debt transfer notices have been issued since April 2011 so this is a key area of concern for recruitment supply companies that work with service providers.

Tax transfer risk

Under the MSC legislation any contractor company that pays its worker more than employed levels of income can be regarded as a Managed Service Company, if it appears that a provider promotes the use of the company as a tax avoidance vehicle and remains involved with that company.

If HMRC is of the view that a company fits the criteria it is possible for the resultant underpaid levels of tax to be transferred to third parties including any referring agency and its directors.