MSC Legislation [UK]

Managed Service Companies 

April 2007 saw the Government introduce legislation relating to Managed Service Companies (MSCs). The consequences of this legislation is to treat all payments received by contractors providing their services through such companies as income subject to employed levels of PAYE Income Tax and Class 1 National Insurances. Full details of the legislation and useful guidance can be found on the HM Revenue & Customs website.

What is an MSC? 

In general terms, an MSC is a form of intermediary company through which contractors provide their services to end clients and importantly, is promoted and operated by a MSC scheme provider who provides the structure to contractors. The contractor does not exercise control over the company. 

What are the consequences of working through an MSC? 

Individuals operating through service companies should consider carefully their and their company’s relationship with a MSC scheme provider. If a service company is within the legislation and the company fails to operate employed levels of PAYE, this could result in individuals being held personally liable for the PAYE debts of the company.

Who is not affected by the MSC Legislation? 

Typically, individuals working through Personal Service Companies (PSC) are not within the definition of a MSC as long as there is no MSC scheme provider involved.

Individuals working through Umbrella Companies, where such Umbrella Companies ‘employ’ the contractors under a valid contract of employment and deduct the correct PAYE and NI on their behalf, are understood to be outside the MSC legislation.

Where can I find more help and advice? 

The MSC legislation specifically excludes Recruitment Agencies from the definition of an MSC scheme provider, as long they restrict their activities to the pursuit of finding work for individuals with end clients.

As with many other Recruitment Agencies in the engineering and technical sector, it is the policy of NES Group not to ‘promote or facilitate’ the use of any service companies. The decision as to whether you use your own Limited Company to provide services to end clients has to be a personal one based on your individual circumstances. NES Group strongly recommends you take independent professional advice.

To get a better understanding of your options, the Professional Contractors Group provides useful help and advice for individuals who choose to work for themselves.