Managed Service Companies

more commonly referred to as MSC's

 

The most common form of MSC was the Composite Company, where typically 20 contractors or so became non director shareholders of the company. The contractors received a minimum wage salary along with expenses with the remainder payable as a more tax efficient dividend payment. This method of remuneration provided many financial benefits, since it avoided the payment of Income Tax and National Insurance that would otherwise be payable if the contractor was paid entirely under PAYE.

 

In December 2006 the UK Treasury introduced draft legislation 'Tackling Managed Service Companies' which sought to address the use of "composite" structures to avoid Income Tax and National Insurance on forms of trading that the Treasury deem as being akin to "employed". After a period of consultation and re-draft, the new legislation became law in April 2007 with additional aspects coming into force in August 2007 and then with full effect from January 2008.

 

Following the MSC legislation, it is now the responsibility of a MSC provider to correctly operate PAYE and deduct the necessary Income Tax and National Insurance on all income payable to a contractor.

 

To reinforce this law, the government have permitted the recovery of any underpaid taxes from appropriate third parties; principally those behind the MSC as well as connected or controlling parties.

 

One way to operate compliantly in a limited company capacity is to set up and administer a limited company yourself, although you must not delegate control or key decisions to any third party supplier. The other alternative being to set up under a PAYE Umbrella Company.