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Learn about the Managed Service Company (MSC) Legislation and what it means for you as an accountant providing services to UK contractors

MSC LEGISLATION

As a contractor accountant, you will likely have heard of the MSC legislation as you will need to ensure you are not acting as a Managed Service Company Provider (MSCP).

The MSC legislation specifically exempts accountants from being an MSCP provided that, in the case of an accountant, they are doing no more than providing normal accountancy services in a professional capacity. More information is provided below.

ESM3515 states that “an accountancy/tax advisor, whether or not professionally qualified, who provides advice to clients who are service companies is not an MSC Provider merely by virtue of their client base. The test is whether a person is carrying on a business (or a discernable part of their business) of promoting or facilitating the use of companies to provide the services of individuals.”

WHAT IS THE MSC LEGISLATION?

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The Managed Service Company (MSC) legislation was designed to combat the perceived tax abuse by contractors who provided their services via a limited company of which they were one of a number of unconnected shareholders, commonly referred to as composite companies. Contractors in these ‘composites’ would then be paid tax efficiently as shareholders without having any control of their company or playing any role in the running of it.

The effect of the legislation is similar to that of IR35 and where a contractor is deemed to be an MSC, HMRC will look to reclassify all payments received for the services provided by an individual as employment income, subject to PAYE and NICs. A contractor must meet certain criteria to be classed as an MSC, the most important of which is the existence of an MSCP (Managed Service Company Provider).

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WHAT DOES THE MSC LEGISLATION MEAN FOR YOU AS AN ACCOUNTANT?

QDOS COMMERCIAL SERVICES PROVIDING YOUR BUSINESS WITH THE TOOLS AND RESOURCES TO MANAGE IR35 CHANGES IN THE PRIVATE SECTOR

An MSCP is defined as “a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals.”

Activities that could be classed as promotional include marketing, encouraging and initiating. So, for example, a marketed scheme would sit squarely in this definition. “Facilitating” is any form of assistance that the MSCP provides that encourages the use of limited companies.

As mentioned above, an accountant is excluded from being an MSCP where they are simply providing their accountancy services, however a firm of accountants who carry out a “discernable part of the business to specifically market and/or provide corporate solutions and services” to PSCs would be classed as an MSCP, but only in respect to that part of the business.

Simply because a person is an MSCP does not necessarily mean that their client companies are MSC’s. Crucial to the legislation is whether or not the MSCP is involved with its client company. If the MSCP is not “involved” then the legislation does not apply. “Involved” is defined by reference to any one of the following five activities;

1. that of benefiting financially from the provision of the services of the worker on an ongoing basis.

2. that of influencing or controlling the provision of the services of the worker. The (often compulsory) provision of an engagement contract, dictating /determining the terms under which the worker provides their services or is to be remunerated, are just some examples of exercising influence or control over the worker’s provision of their services.

3. that of influencing or controlling the way in which payments to the worker or an associate are made.

4. that of influencing or controlling the company’s finances or any of its activities.

5. that of giving or promoting an undertaking to make good any tax loss. Where an MSCP or an associate either offers insurances, ie tax loss insurance, against the tax and NIC liabilities arising under the MSC legislation, IR35, or indeed any other provision of the Tax Acts or National Insurance legislation, they will be involved with those client service companies to which they either offer or promote such insurance.

See below table demonstrating services that constitute being involved & not involved;

Not Involved

Managing company formation

Acting as client company’s registered office

Registering companies for VAT, PAYE & CT

Preparing companies for VAT, PAYE & CT

Providing IR35 advice on a particular engagement

Advising on a remuneration package

Advising on expense claims

Preparing Invoices

Submitting invoices to client company’s clients

Operating a payroll

Preparing weekly/monthly payslips

Preparing management accounts and financial statements

Providing company secretarial support services

Involved

Providing a standardised corporate solution

Being a director of client companies

Being the company secretary of client companies

Managing client company bank accounts or the clients’ finances through a separate account

Charging fees based on the number of invoices raised/payroll runs

Qdos can offer MSC training and audits for accountants of varying size and expertise. Contact the consultancy team on 0116 2690992 for more information.

MORE INSIGHTS

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