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Managed Service Company Legislation (MSC)

In April 2007 the H&M Revenue and Customs (HMRC) brought out the Managed Service Company legislation (MSC), to further enhance and assist the existing legislation of IR35.

The legislation runs alongside the principle, that for the treatment of tax, income earned through employment, should therefore be taxed as such. With this legislation the HMRC aims to ensure that even if an individual is working through a company or scheme provider, if the contract is one of employment, tax and National Insurance Contributions will be paid at employed levels (PAYE).

The HMRC State that workers using MSC‘s are almost invariably not in business on their own and the contract will be based on that off employment. The HMRC have therefore used this legislation to provide them with more legislative resources to police MSC’s who are not compliant with IR35. The HMRC found that by moving the assessment away from the individual to the service company they would have further power to make a challenge.

In conclusion the MSC legislation was put in force to prevent Managed Service Companies, such as Composite, PSC and Scheme Providers from allowing individuals to gain an unfair tax advantage over that of compliant workers and businesses.

It does mean that in addition to contractors needing to understand their employment status, they also need to ensure they understand how their service company operate. The only guaranteed compliant option for a contractor our payroll methods that operate PAYE such as MyPay who operate a PAYE Umbrella Company.

For information on IR35 click here.
For information on IR56 click here.

Managed Service Company Legislation (MSC)
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