Glossary · UK
What is Managed Service Company (MSC) Legislation?
Anti-avoidance rules that tax income from a Managed Service Company as employment income where a third-party provider, rather than the worker, effectively controls the company.
Full Definition
The Managed Service Company (MSC) legislation, introduced in 2007, is separate anti-avoidance legislation from IR35 and the off-payroll working rules, targeting companies where an MSC provider -- a third-party business that sets up and administers large numbers of similar companies for unrelated workers -- has a financial interest in the company and is involved in its running, benefiting financially from how workers are paid (typically a mix of low salary and dividends to minimise National Insurance). Where a company is found to be an MSC, all payments received by the worker are treated as employment income subject to PAYE and Class 1 National Insurance, regardless of an IR35 status determination. Since 2022, liability for unpaid PAYE and NI arising from MSC arrangements can also be transferred directly to the MSC provider itself, and in some cases to company directors and other office holders, making it a significant risk area for accountants and umbrella-style providers who administer contractor companies in bulk rather than for genuinely independent one-person businesses.