The Managed Service Company (MSC) Legislation was introduced in 2007 in order to prevent multiple contractors carrying out the practice of being paid through a single Limited Company, known as a Composite Company, if they were not truly self-employed and had no responsibilities with regards to running and managing that Limited Company.

It was common place before 2007 for contractors to receive payment via dividends from a composite company, without the responsibilities of managing and running that company, rather than as employment income under deduction of PAYE.

Contractors are of course perfectly allowed to operate through their own personal service company(PSC) which they manage personally, as long as they have professional support and guidance from companies such as your psc from the cps group.

The legislation also targets service providers like the cps group preventing them from promoting the use of Limited Companies for Contractors that do not intend to manage the limited company themselves.

How does this affect your Agency?

Within the MSC legislation in order to ensure adherence to the new rules there was a greater emphasis placed on the Transfer of Debt. This part of the legislation was introduced to ensure that all parties involved in the contracting supply chain had an equal responsibility to not promote deliberate tax avoidance.

Therefore any Agency wanting to stay compliant with these regulations needs to choose its recommended service providers carefully. A service provider that only promotes the use of Limited Companies to Contractors referred by the Agency clearly then is treading a fine line with compliance.

To be certain that your Agency can avoid any transfer of debt risk you need to engage with a company like the cps group that does not promote one solution ahead of any others. Rather that it offers Agency Contractors a complete choice of solution best suited to their personal circumstances.

To find out more about this and other legislation that may affect your Agency then please do not hesitate to contact us on 0203 582 7950 and ask to speak to our Compliance Manager.


The IR35 or Intermediaries Legislation was introduced in 1999 in order to determine the differences between an employee and a contractor.

Background to IR35 legislation

During the period leading up to the late 1990’s, some Tax Advisors orchestrated the trend of people leaving permanent employment and the next day doing the exact same job in the exact same way for the exact same company as a contractor working through a limited company, but not paying the exact same levels of income tax, which became known as the “Friday to Monday” scenario.

The Government became a bit concerned about the lost taxes caused by this trend, and of contractors setting up their own company, or joining a company with other contractors simply to receive their income in a more tax efficient way. They decided that they needed to introduce some rules to control this pattern, so that the only people who could take advantage of the tax benefits of operation like this were those people who were genuinely working in a self-employed capacity.

What is IR35?

For those of you who are intrigued by the term IR35, it simply means that it was the 35th statement of the Inland Revenue in that year! The Chancellor announced that he was going to tackle the issue highlighted above by introducing a series of laws to ensure that anyone who was operating through a limited company or other payment structure that was actually a ‘disguised employee’ of their client paid income tax and national insurance on the full amount, rather than receiving their income in other ways, usually by means of company profits which do not attract a National Insurance Contribution.

IR35 explained

So, what does this actually mean to you and us? And what’s happened since? Read on …

A contractor who is a disguised employee would be ‘inside IR35′ and therefore caught by the legislation. A contractor who is not acting in the same way as an employee is ‘outside IR35’ is therefore not caught by the legislation.

IR35 in practice is simply the distinction between an employee and someone who is not.

The government didn’t have much luck with the legislation initially, partly because it’s so difficult to understand. So, in 2003 along came IR56. This helped clarify things and we now have some clearer indications as to what situations mean as a result.

HMRC have issued their own guidance on the key employment status test, if you’d like to take it from the horse’s mouth, take a look at their website here.

So along with the MSC legislation above the important issue for Recruitment Agencies to consider is whether the Contractor they have placed with their end client is engaged correctly for tax purposes so there can be no Transfer of Debt issues as a result.

By utilising the services of the cps group we will always make sure that the Contractor is set up on the right payment scheme for their circumstances and as a result will NEVER expose the Recruitment Agency to any Transfer of Debt issues.

For further information on all aspects of legislation that may affect your business then please call us on 0203 5827950 and ask to speak to our Compliance Manager.


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