Managed Service Company Legislation effective April 2007

Are you aware of the new Managed Service Company Legislation?

If you’re a contractor with a limited company, the new legislation may affect the way you work. From April 2007 new legislation deems Managed Service Company’s as illegal. The legislation does not affect those working via an umbrella (PAYE Payroll) or Personal Service Company (PSC). In addition to this agencies will no longer accept sole traders as they do not conform to the new financial intermediaries legislation April 2014

The MSC Legislation 2007

In March 2007 the Chancellor announced legislation that effectively made MSC providers illegal unless they ensured that their MSC companies and client contractors paid full tax and national insurance on their earnings. It also prevented MSC’S claiming travel to and from work and other related expenses. This has spelt the effective end of the MSC and the composite company including the Multi share class Single person company as there is no longer a financial advantage to use it as corporate vehicle to contract through.

In addition the definition of a MSC was widened to include organisations providing services to Personal service companies (PSC’S) whereby their services would mean that the PSC receiving the services became an MSC AND AS A RESULT WOULD HAVE TO PAY FULL TAX AND NATIONAL INSURANCE ON ALL EARNINGS.

Finally the debt transfer provision where the Inland Revenue could pursue third parties judged to be involved in advising or providing these services was delayed to January 1 st 2008, but after this agencies, intermediaries and end user clients could be pursued to provide any unpaid tax and national insurance for PSC’S they were judged to have an association with. This is expected to be passed as Law in July 2007.

So what have been the effects?

  • Contractors are moving either into PAYE SUPPLY( UMBRELLA) schemes or seeking to set up their own PSC.
  • Agencies are preferring contractors using PAYE Supply (solutions) or PSC’s set up and serviced through a legitimate professional firm of Qualified / Chartered Accountants (not ex-MSC providers).
  • PSC’S should only be set up through Qualified / Chartered Accountancy firms that understand contracting (to be sure you are compliant).


Will only gain a financial advantage from Contracting through a PSC if the company is, clear of any organisation that may cause it to become an MSC, Managed and controlled by the owners and directors not a third party, Serviced by an independent Qualified Accountancy practice, and is operating contractually outside of IR35. Otherwise it will have to pay full tax and national insurance on its income.


Will wish to avoid any debt transfer through using either Contractors who use a recognised PAYE Supplier (Umbrella) payroll or PSC’S that are set up and serviced correctly through Chartered / Qualified Accountants so that they pay all taxes due. They will still wish to encourage talented freelancers in the IT industry to work through them but will wish to minimise the risks of debt transfer.

At BITE we ensure everyone we work with is not accidently caught by the legislation.

For more MSC Legislation.

Find out more about BITE Compliance – Send in your CV

No Job no Training costs guarantee disclaimer: Under the 10 step job search program, we can’t help you get a job unless you regularly visit our offices, attend coaching and mentoring sessions, utilising the support provided to you. We work face to face with real people and you must work with us to help you. If then you don’t gain a job in the agreed time having attended the whole 10 step career coaching programme and used our job search database correctly we won’t charge you a penny and will refund the cost of any training you have undertaken that we have advised you to invest in!

The Three Day CV Marketing Personal Brand Plan does not carry a no job no training costs guarantee.

However If you purchase one of our training modules separately, attend and are not satisfied with it we will refund your money.

BITE Compliance covers: IT Contracting London UK, IT Consulting London UK, IT Contract work London, IT contract Jobs London, Temporary IT work in London, Temporary IT Jobs in London, working with Freelance Interim Consultants for professional jobs and IR35 and Limited company or PSC Compliance services.

BITE also offers: Contractor marketing and advertising services, CV Marketing services,  with how to write an IT Contract CV to produce a Killer contract CV with, IT CV templates and IT CV examples. Your Jobsearch in our London office provides access to the hidden contract job market, career coaching for contractors, and contractor career management services .

BITE is not a visa or employment agency, nor an account or tax adviser!