Managed Service Company

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In the United Kingdom, a form of company structure has evolved known as a Managed Service Company (MSC). Largely, born from the IR35 legisaltion in 1999 which came into force in 2000, this form of corporate structure places workers and contractors typically into a group of between 5 and 8 people as shareholders in a corporation owned and run by the service provider. Sometimes the workers will be appointed as Directors but always shareholders. As shareholders they can then receive minimum salary payments and the balance of income as dividends. Usually the service provider would perform company secretatial duties and offer basic taxation advice.

These forms became popular where independent contractors are used as a way of earning high net returns (circa 85%+) compayed to PAYE with little corporate responsibilities. In return the providers charge a fee for delivering the service. To work within this form wokers must usually pass IR35 tests to ensure they are able to take dividend payments.

In December 2006 the UK Treasury/HMRC introduced draft legislation "Tackling Managed Service Legislation" which seeks 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 April 2007 with additional aspects coming into force in August 07 and fully January 2008. A PAYE umbrella company is effectively exempted from the legislation, which also seeks to pass the possible burden of unpaid debt (should a provider "collapse" a structure) to interested parties e.g. A recruitment agency that has been deemed to encourage or facilitate the scheme.

A number of MSC providers have since withdrawn from the market and have either converted to PAYE operations or sought to become seens as true Accountants rather than scheme promoters.

[edit] References

• http://www.hmrc.gov.uk/employment-status/msc-guidance-july07.pdf
• http://www.hmrc.gov.uk/ir35/help.htm
• http://www.hmrc.gov.uk/employment-status/details.htm

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