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In the light of the problems primarily caused by the rise and growth of Managed Service Companies (MSCs), the Treasury issued its second consultation document, which clarifies the perceived ‘grey areas’ of transfer of unpaid PAYE contributions.
The government identified a problem in collecting taxes and National Insurance Contributions (NICs) from some composite companies. It therefore proposed to make all third parties (as defined below) liable for any PAYE/NIC debts, should the composite company be closed in the event of a challenge from HM Revenue & Customs.
The burning question is, who exactly would be treated as a third party? Well, we’ll try to lay it out for you as clearly as we can.
Third parties fall into two areas. The first consists of those entities that are automatically included within the scope of the legislation. They are the scheme provider, the directors, officers and associates of the MSC and the contractor.
The second area includes any other party who knows or can be reasonably expected to know, about the scope of the provision of services. This includes any agency that has either a preferred supplier list or an exclusive arrangement with a scheme provider. This group also includes employers who outsource work directly to contractors.
It should be noted that third parties are only affected if the debt (Tax and NICs) cannot be collected within the scope of the 'Closely Connected Parties.' This is an important aspect of the legislation, as there will be an appeals process attached.