Omega2 Accounting

Managed Service Companies

Until recently, a popular approach in providing contracting services was the use of a managed service company (MSC).  While MSC schemes varied in their detail the basic set-up was quite similar in that companies were formed of multiple workers, each holding a different class of share.  The varied share class enabled each worker to receive dividends calculated from their specific income so avoiding the payment of considerable amounts of national insurance.  This feature had long been under scrutiny by HM Customs & Excise (HMRC) who set up a specialist team to tackle this spurious approach.

Another feature of many MSC schemes was the practice of each worker claiming significant subsistence expenses, granted under dispensations from HMRC, and so reducing their overall tax bill.  This often included round-sum allowances and incomplete expense documentation to validate such claims.

Given the significant losses to the exchequer in national insurance and unpaid corporation tax the government's recent clampdown on MSCs was not a surprise.  Under the legislation announced many MSCs must now put a worker's full income through a PAYE scheme and pay the correct amounts of UK tax and national insurance.  In addition the government have limited the expenses that a worker can claim.

Are MSCs Still In Operation?

The legislation introduced by the government does not prohibit the existence of MSCs but does significantly restrict how such schemes may operate.  With the benefits offered by MSCs now considerably reduced, particularly in the area of dispensations, many workers have sought to an alternative vehicle for providing their services.