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Managed Service Companies

Published on Dec 7, 2006 |

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In delivering this year's Pre-Budget Report, the Chancellor made it clear that he intends to come down hard on schemes designed to avoid paying income tax and National Insurance.

The new measures are expected to be introduced via the Finance Bill 2007, with an aim to implement the changes from 6th April 2007.

You can read a good initial summary of the proposed changes by tax expert Anne Redston on the BBC site here.

The following is the key extract related to the treatment of Managed Service Companies. The Government has also released a guide entitled "Tackling Managed Service Companies" here (PDF).

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The Government is taking action to tackle Managed Service Company (MSC) schemes which are used to avoid paying employed levels of tax and NICs. Income received by workers in MSCs in relation to services provided through the MSC will be subject to employed levels of tax and NICs, with the MSC obliged to operate Pay As You Earn (PAYE) and deduct tax and Class 1 NICs on that income - and the rules for tax relief for travel expenses will be the same as for other employed workers. The Government will also address the problem of MSCs escaping payment of tax and NICs due by allowing the recovery of these debts from appropriate third parties.

This will protect the Exchequer and ensure a level playing field for compliant businesses and workers. The Intermediaries legislation will remain in place for Personal Service Companies.

The Government is consulting on the draft legislation to implement this measure. The draft legislation and questions for consultation are set out in the consultation document Tackling Managed Service Companies, published alongside the Pre-Budget Report today.