MSC Legislation

A Managed Service Company (MSC) is a personal service company which uses a third-party provider (MSC Provider) to limit the responsibility of running the company, whilst still benefiting from the tax efficiencies of a limited company structure.

A personal service company (PSC) is a limited company where the main shareholder is also the primary fee-earner. In most cases, they are the director and only employee of the company.

The MSC legislation will apply if the following criteria are applicable to your circumstances:

1. You mainly provide the services of an individual (via a personal service company) to other people/businesses
2. You receive, as the owner of your PSC, payment for your services which is either the full amount received by the PSC, or close enough to the full amount
3. The amounts received are greater than would have been received if the payments had been subject to PAYE
4. A person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals (“an MSC provider”) is involved with the PSC

You should speak to your accountant or a recognised tax specialist like Qdos. Not only are we MSC legislation experts, but we have a world of experience when it comes to supporting our customers and setting them up for dealing with MSC enquiries.

If it turns out that your company is classed as an MSC, any payment or benefit that you receive (as the worker) will be subject to tax and class 1 NICs, as any payment or benefit will be classed as employment income and earnings.

IR35 and the MSC legislation aren’t directly connected. However, IR35 will take precedence over the MSC rules. Therefore should you be found inside IR35 (employed for tax purposes), MSC won’t apply.

A Managed Service Company Provider (MSCP) is defined as “a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals.”

An example of this would be an accountant who promotes the services of a personal service company. An MSCP can work with legitimate PSCs, it’s only where an MSCP is classed as ‘involved’ in the business that a PSC becomes an MSC.

Immediately speak to a recognised tax specialist like Qdos. We’re highly experienced when it comes to the MSC legislation and can help you best prepare for what’s coming your way.

If you end up being classed as an MSCP, there’s a risk that any liabilities, tax, or national insurance contributions owed by the MSCs you are involved with could be transferred to you.

This is because where these costs can’t be recovered from the MSC in question, HMRC may transfer the debt personally to the company’s director, the MSC provider, or to other third parties.

This isn’t the only risk of being labelled an MSCP. It might cause you to wave goodbye to your credibility as PSCs that you work with, or ones that you have yet to work with, question whether your services are the best choice if they wish to remain out of trouble.

Here are some simple examples of the actions of an MSCP that constitute being involved with their service company client, and what wouldn’t indicate an MSCP being involved with their service company client.

 

Involved

• Providing a standardised corporate solution
• Being a director of client companies
• Being the company secretary of client companies
• Managing client company bank accounts or the clients finances through a separate account
• Charging fees based on the number of invoices/payroll runs

 

Not involved

• Managing company formation
• Acting as a client company’s registered office
• Registering or preparing companies for VAT, PAYE, & CT
• Providing IR35 advice on a particular engagement
• Advising on a remuneration package
• Advising on expense claims
• Preparing invoices
• Submitting invoices to client company’s clients
• Operating a payroll
• Preparing weekly/monthly payslips
• Preparing management accounts and financial statements
• Providing company secretarial support services