MSCs ― overview

Produced by Tolley

The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • MSCs ― overview
  • What are managed service companies (MSCs)?
  • Outline of MSC legislation
  • Definition of an MSC
  • When an MSC provider is ‘involved with the company’
  • Lawyers, accountants and recruitment businesses
  • HMRC examples of MSC providers
  • Payroll companies possible MSC risks
  • Transfer of debt rules
  • Travel expenses of MSC workers

MSCs ― overview

What are managed service companies (MSCs)?

Many people supply their services to clients, not directly as a self-employed person, but via a company, known as a personal service company (PSC). The tax and NIC advantages of this way of working are significant. See the Personal service companies ― overview guidance note. Where a PSC is owned by the individual worker, it is likely to be caught by the off payroll working legislation, commonly known as IR35. See the Anti-avoidance rules ― off payroll working (IR35) guidance note. In the years following the introduction of that legislation, a number of providers began to offer PSCs to a wide range of individuals. These providers usually supplied the workers with a contract with clauses designed to avoid IR35, whilst still delivering many of the benefits of a PSC.

The providers also dealt with the onerous elements of running a company, such as calculating PAYE, profits and dividends, and dealing with both Companies House and HMRC. Companies with external providers who supplied these all-encompassing services became known as MSCs, in contrast to PSCs where it is the individual who runs the business.

There is a special anti-avoidance tax regime for MSCs.

Outline of MSC legislation

If a company is an MSC, the off payroll (IR35) provisions do not apply. Instead, workers in MSCs are deemed to be within PAYE (including NIC) for all of their receipts, including dividends. For this purpose, receipts can include both monetary payments and benefits.

In addition, the reliefs for travel expenses are limited, so that the expense of any travel by the worker to and from the client's premises is normally not deductible for tax purposes. This is in contrast to the more generous rules which apply to PSCs. See the Off payroll working (IR35) ― calculating the deemed employment payment guidance note.

Supplementary legislation and regulations give HMRC the pow

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