As part of Budget 2007, legislation was introduced relating to Managed Service Companies (MSCs). The consequence of this legislation is that MSCs treat all payments received by workers providing their services through such companies as income subject to PAYE and Class 1 National Insurance.
Section 688A, Part 11 ITEPA also introduced transfer of debt provisions whereby the PAYE and NICs debts of MSCs, which are irrecoverable from MSCs, can be transferred to third parties.
So what is a Managed Service Company?
A MSC is a type of corporate structure which places workers and contractors into a limited company as shareholders. The service company that sets up this structure, runs and manages the limited company. The tax benefit that this structure gave meant that shareholders could take home up to 85% of their gross income.
The MSC legislation sought to “tackle” the use of composite structures to avoid tax and National Insurance on forms of trading that the HMRC deemed as being equivalent to employment.
Another aspect of the legislation introduced the ability for HMRC to transfer tax and National Insurance debts, which are not able to be recovered from MSCs, to the third parties involved in the formation of the structure.
So how can an umbrella company like Brolii help?
In the words of HMRC:
“In umbrella companies workers are treated as employees of the umbrella company and all payments to workers as employment income which is paid in the form of salary and allowable expenses. It follows therefore that what the worker has received from the umbrella company is the same as they would have received from any other company through which the worker operated and which treated all payments as employment income. Consequently the third condition is not met and the umbrella company does not meet the definition of a Managed Service Company.”
By being a contractor under the Brolii umbrella, you don’t need to worry about MSC legislation. You will be placed onto a full employment contract and be paid via PAYE which means all of your tax and National Insurance contributions are taken care of.
Find out more
For a company to be deemed a MSC, there are four conditions that must be met. However, the nuances of condition four are way too much to cover here. If you would like to read the official guidance on MSC legislation click here
You can also get in touch with the expert team at Brolii here