Managed Service Company (MSC) legislation
What is the measure aimed at?
Aimed at intermediary businesses (not the end-user of the service, nor Personal Service Companies (PSCs) usually) which are paying workers for their services. MSC rules challenge ‘contrived’ payment arrangements made by intermediaries, which are introduced primarily to create tax or NIC savings. Examples may include payment of dividends (where the payee does not have any real ownership of the business) and unsubstantiated expenses payments, as well as payments via offshore companies or on a self employed basis.
How does it operate?
The rules seek to identify if an individual receives more net income than if all payments had been fully subjected to PAYE/NIC; and if so identifies whether there is an orchestrator of the arrangements (i.e. an ‘MSC’ or ‘MSC Provider’, who also benefits from the arrangements). NB: If the contractor runs their own ‘one man band’ PSC, we would normally expect the IR35 rules to apply to that PSC instead.
What is the result?
The business paying the worker must account for PAYE/NIC in full on all relevant payments.
Is there potential for duties to be transferred elsewhere?
Yes – If debts remain unpaid by the MSC or MSC Provider, these can be transferred up the supply chain to any other business that has influenced or controlled the payment arrangements, including the ‘end client’.