MSC legislation

A Managed Service Company (MSC) is a company structure that is managed and controlled by a third party that administers and influences payments to the worker.  It developed from attempts to avoid IR35, with external “advisors” controlling a freelancer’s personal service company, and therefore the worker is not necessarily truly self-employed so HMRC perceive that insufficient tax is being paid.

As a result, MSC legislation now requires all income through this structure to be taxed as employment income, subject to PAYE and NI in full rather than the option to pay in dividends.  Any business that manages or promotes the use of an MSC is classed as an MSC provider, and therefore the worker is taxed accordingly.

If an MSC does not pay its taxes in full, HMRC can demand the unpaid tax from other parties, including transferring the debt personally to the other directors of the MSC, the intermediaries who formed the MSC, or those deemed to have encouraged the individuals to use the MSC route.  The underpaid tax can be demanded from these parties either individually or together.