Managed Service Company and other tax schemes

HM Revenue & Customs (HMRC) is active in enquiring into and tackling what are sometimes described as ‘disguised employment’ or remuneration schemes – arrangements in which trusts and other vehicles are used to avoid, reduce, or defer liabilities to income tax or restrictions on pensions tax relief.

Legislation was introduced in 2007 which aimed to remove any tax advantages from workers who might benefit from working through a managed service company (MSC), a form of intermediary company, through which workers – typically contractors – provide their services to end clients.

The rules do not outlaw MSCs but mean that unless a worker is genuinely in business in their own right, and controls all aspects of the company, all payments made to them must be subject to PAYE and national insurance contributions.

In 2011, further legislation was passed to prevent disguised remuneration through schemes such as:

  • employment benefit trusts (EBTs)  – a discretionary trust established by a company or limited liability for the benefit of its employees and their immediate families, typically set up offshore
  • employer financed retirement benefit schemes  or EFRBS – unregistered pension schemes in which the employee only pays income tax when the benefits are drawn, at which stage the employer can claim corporation tax relief at that stage

For employers or companies seeking advice on any issues around MSCs, EBTS or EFRBS, or those contacted by HMRC in connection with such schemes, Taxation-Investigation can provide the expert support necessary to clarify the position and provide representation in reaching settlements with HMRC. Please contact us.