Budget 2007 – Construction Industry

The Chancellor promised a “Budget to expand prosperity and fairness” – he does not appear to have applied this to the construction industry.

With the industry feeling the pain of introducing the new construction industry scheme, it could appear that it has been harshly treated by the Chancellor. Attacks on managed service vehicles, which have been widely used by the industry, as well as an increase in aggregates levy and a 166% rise in landfill tax will mean many unhappy taxpayers.

Tackling Composites and Managed Service Companies

Seven years after imposing PAYE and NIC for personal service companies (PSCs – generally owned and managed by the worker), under the “IR35” rules, parallel and tougher legislation was announced to tackle managed service companies (MSCs – although a shareholder, the worker will not manage or control the business). The Government has taken action as a result of the perceived poor levels of compliance associated with these arrangements. It predicts an additional yield of around £1 billion over the next three years.

The last few weeks have seen a stampede of businesses considering ways of circumventing the proposed MSC legislation, largely by converting MSCs to PSCs.

The Treasury has confirmed that legislation will come into force from 6 April 2007 affecting MSCs and there will be some important changes to the draft legislation we saw last December including:

  • an amended and potentially wider definition of an MSC provider – which could now catch many of these newly-created PSCs
  • clarification that employment agencies will generally not be an MSC provider
  • although the new legislation will allow HMRC to pursue PAYE and NIC unpaid by an MSC from other related parties (including the actively involved end user) this will not be operative at least until Royal Assent.
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