HMRC have released a guidance document on the managed service company legislation.

The legislation, which is contained within the Finance Bill 2007, aims to ensure that income received by individuals who provide services to an end user (via an MSC) will be treated as employment income.

Therefore, the MSC will have to account for Income Tax (PAYE) and National Insurance on all payments received by individuals using the Company.

For a company to be called a "Managed Service Company", a number of conditions must be met (these conditions are laid out in the guidance note).

Indicators of whether a service provider may be an MSC provider (extract from guidance note)

Questions to consider

1. Do all of the companies the service provider supports have a unique identifier? (e.g. John Smith (well known provider) Ltd, Pete Brown (well known provider) Ltd.)

2. Does the service provider determine, or seek to determine, terms and conditions relating to the client company, or individual? e.g.:

• Format of contract
  
• Payment arrangements
  
• Payment rates
  
• Invoicing arrangements
  
• Terms under which the individual will work
  

• Receipt, or payment, of company funds (particularly payment into a common bank account.)
  
• Contractual arrangements