MANAGED SERVICE COMPANIES
Legislation is to be introduced with effect from 6 April 2007 affecting how workers providing their services are taxed. The new legislation defines a Managed Service Company (MSC) and required that income received by individual providing their services through such a company that is not treated as employment income - be deemed to be employment income.
From 6th April 2007 MSCs will be required to operate PAYE on all payments received, on or after that dates, by workers providing their services through such companies. Once the Finance Bill received Royal Assent and National Insurance legislation is enacted, MSCs will also be required to deduct class 1 NICs.
Since MSCs often have little or no assets, the legislation will also provide that HMRC may transfer the outstanding tax and NICs debt from the MSC to the third party. This will primarily be the MSC’s directors or other company officer and the person who provided the company to the individual (the MSC provider). The transfer of debt provision in respect of MSC directors or other company officer and Providers will have effect once the Finance Act receives Royal Assent. The transfer of debt provision for other parties will have effect from 6 January 2008.
What is a 'Managed Service Company' (MSC)?
An MSC is a form of intermediary company through which workers provide their services to end clients. The definition of an MSC in the legislation encompasses both 'composites' and 'managed personal service companies'.
In essence a scheme provider promotes the use of these companies and provides the structure to workers. The worker (although a shareholder) does not exercise control over the company.
How can I tell if I am working through an MSC?
If you are not paid directly by your agency, your client or the person engaging you, and if
- You're paid via a limited company
- Someone else manages and administers your company
- You're paid partly in salary and partly in dividends
- A fee is deducted from your pay for this service
I provide my services through a company. Am I affected by the legislation?
Yes - if you are working through an MSC. Personal Service Companies are not within the scope of this legislation.
I operate through a PSC - will these new rules apply to me?
No - the new rules will apply only to those within the definition of MSCs. You should check that your company isn't an MSC as defined in the legislation, but if you are in business on your own account and control your company's finances and how the company operates, you will not be an MSC.
