Managed Service Company
A managed service company is a service company that provides contractors with a solution to manage their invoicing and accounting. Up to April 2007 independent subcontractors had been able to legitimately reduce their tax burden by using a corporate structure where they took the majority of their income as a dividend, thereby minimising their taxation and NIC.
In 2007 however, HMRC brought in MSC legislation which in essence was designed to stop subcontractors taking advantage of a corporate structure when they were not involved in the day to day management and running of that company. HMRC argued that this was a huge risk to the exchequer as it was missing out on what it perceived was the correct amount of Tax and NIC.
These companies were termed Managed Service Companies, and the provider who operated them, Managed Service Providers. This created a huge shift of subcontractors away from this type of managed company, into Umbrella Companies, and for higher paid contractors to run their own limited companies.
