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Chancellor provides definition of a "Managed Service Company"

Published on Mar 22, 2007 |

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Our colleagues at Contractor Calculator have obtained the text of the law that will change the way contractors do business in this country - the law that defines Managed Service Companies (MSCs) and explains how they will be penalised under the new tax legislation.

According to the 2007 Budget measure, a company is a Managed Service Company (MSC) if:

• Its business consists wholly or mainly of providing (directly or indirectly) the services of an individual to other persons
• Payments are made (directly or indirectly) to the individual (or associates of the individual) of an amount equal to the greater part or all of the consideration for the provision of the services
  
• The way in which those payments are made would result in the individual (or associates) receiving payments of an amount (net of tax and National Insurance) if every payment in respect of the services were employment income of the individual, and
• A person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals ("an MSC provider") is involved with the company

According to the text of the law, any worker who receives his income from a company of the type described above must consider himself an employee subject to PAYE and National Insurance deductions. The text goes on to define how the worker's tax will be calculated.

Further MSC Resources

You can also read HMRC's July 2007 guidance (PDF) which fully defines what a managed service company is, how to recognise one, and how such companies will be taxed.

Also read our article - what is a MSC provider?.

You can also access the Professional Contractors Group's comprehensive coverage of the MSC legislation here.
 

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