MSC Legislation

The MSC legislation was introduced in April 2007 and applies to individuals providing their services through intermediaries which meet the definition of an MSC (Managed Service Company). All payments received by individuals providing their services through MSCs are subject to PAYE and National Insurance contributions.

Key to the legislation is the existence of an MSCP (Managed Service Company Provider) involved with the client company. The legislation specifically exempts, however, legal or accountancy services, where they are professionally qualified and governed by a regulatory body and employment businesses and agencies provided they do not stray from their core business of placing work seekers with end clients.

Just because a company is an MSCP does not automatically mean that their corporate clients are MSC's and that the legislation applies. The key test is whether or not the MSCP is 'involved' with their client which is determined by reference to any one of five specified activities. Three of these tests are mainly to do with the MSCP having influence or control over its client's business, with the other two being providing or promoting tax loss insurance and the way the MSCP charges its fee.

After the legislation was introduced, many companies ran scared and cut off all affiliate ties with other companies which together provided a better service to the contractor.

The reason for this is third party debt transfer. Once the tax and NIC debt has been established HMRC will seek payment from the MSC but where the Revenue certify that an MSC's PAYE and NIC debt is irrecoverable from the MSC, they can seek collection from a number of parties including the director of the MSC, the MSCP or its directors and even agencies if they have been colluding with the MSCP in some way.

It is worth noting that HMRC’s guidance on the legislation specifically states that “The provision or promotion of insurance services, except for insurance to make good a tax loss, does not constitute being involved.” This includes Professional Indemnity and Employers and Public Liability Insurances. Other services that do not constitute being involved include managing company formation and set up, registering companies for VAT, CT and PAYE and preparing management accounts and financial statements.

By:Sam Greenwell

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