MSC Legislation FAQ
What is the MSC Legislation?
The MSC Legislation has been in force since April, 2007 and was brought in an attempt to reduce the “unfair competitive advantage” compared to “compliant businesses and workers”.
The legislation ensures that all payments received by a worker engaged in a Managed Service Company (MSC) are classed as income and subject to PAYE and Class 1 National Insurance.
For legislation to apply, the company through which the worker provides their services to End Clients would need to be defined as an MSC.
What is a Managed Service Company (MSC)?
There are four conditions which would deem a company a Managed Service Company (MSC) which are;
1) The company’s business must consist wholly or mainly of providing direct or indirect services by an individual to third party clients.
2) The individual (worker) supplying their services to the third party client must receive payment from the service company equal to the greater part of the sums received by the service company from the client, for the services provided by the worker.
3) The payments received by the worker are greater than they would have been if all of the payments were treated as employment income.
4) A MCS Provider must be involved with the company.
What is a Managed Service Company Provider?
A Managed Service Company Provider (MCSP) is defined by HMRC as “a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals and is involved with the company.” In this context ‘person’ includes a company, partnership or individual.
Definition of involved;
· Fees charged on an ad-hoc basis; as and when the contractor receives their pay. A firm providing accountancy services is exempt from the MSC legislation but as such must charge a flat free for the years services they provide.
· Influencing or controlling the provision of the services of the worker
· Influencing or controlling the way in which payments to the worker are made
· Influencing or controlling the company’s finances or any of its activities.
· Giving or promoting an undertaking to make any good tax loss.
How does it affect a contractor with a limited company?
Contractors working through their own limited company should ensure their company does not fall within the MSC Legislation by ensuring their provider is not involved with their company.
Companies such as Independent Contractor Services (ICS) are able to offer a number of services to contractors with their own limited company without being involved. Our clients benefit from these services;
- Managing company formation and set up
- Acting as the clients company Registered Office
- Registering companies for VAT, Corporation Tax and PAYE
- Preparing VAT, Corporation Tax and PAYE returns
- Providing advice on whether IR35 applies to a particular engagement
- Advising on a remuneration package
- Advising on expenses claims
- Preparing invoices
- Submitting invoices to clients of a company
- Operating a payroll
- Preparing weekly/monthly payslips and producing employers payroll tryurns such as P35 and P11D’s
- Preparing management accounts and financial statements
- Providing support on secretarial matters, such as drafting of minutes and preparing annual returns
- Providing group insurances
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