A concise guide to the Managed Service Company (MSC) legislation

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What is the Managed Service Company (MSC) legislation?

The Managed Service Company (MSC) legislation was introduced in April 2007, it was designed to combat perceived abuse of limited company models whereby individuals providing services received the benefits of a corporate structure without the responsibilities.

Originally the legislation itself started life to combat composite companies but it soon evolved, prior to final implementation, into the managed service company legislation. It targets PSC structures under which individuals provide their services to clients and effectively the PSC is “managed” by a third party provider.


Defining a Managed Service Company provider

“A Managed Service Company (MSC) is a type of intermediary company through which workers provide their services to end-clients. The definition of an MSC in the legislation encompasses both ‘composites’ and ‘managed personal service companies’. Essentially, a scheme provider promotes the use of these companies and provides the structure to workers. The worker, despite being a shareholder (or partner), does not exercise control over the company.” (1)

Four conditions must ALL be met to be caught by the MSC legislation;

  1. The company’s business consists wholly or mainly of providing (directly or indirectly) the services of an individual to other entities, as would be the case for contractors trading through their own limited company (PSC);
  2. payments are made (directly or indirectly) to the individual of an amount equal to the greater part or all of the consideration for the provision of the services – most contractors are paid via their PSC with an amount which is the greater part of the amount invoiced by their PSC;
  3. the way those payments are made results in the individual receiving payments of an amount (net of tax and NI) exceeding that which would be received (net of tax and NI) if every payment in respect of the services were employment income, and, crucially:
  4. a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals (“an MSC provider”) is involved with the company.


The first three conditions apply to almost any PSC, it is this fourth condition which brings the PSC into the remit of the legislation.  The existence of a third party which is in the business of promoting or facilitating the use of companies for the supply of individuals (an MCS Provider) and that provider is ALSO “involved” with the PSC.

The legislation itself defines what it means to be “involved” and states the following:

  1. benefits financially on an ongoing basis from the provision of the services of the individual,
  2. influences or controls the provision of those services,
  3. influences or controls the way in which payments to the individual (or associates of the individual) are made,
  4. influences or controls the company’s finances or any of its activities, or
  5. gives or promotes an undertaking to make good any tax loss.

These “involved” provisions were the subject of the Christianuyi case (involving Costello Business services),


The MSC legislation also contains debt transfer provisions enabling HMRC to  transfer the debt to other parties:  the individual directors of the MSC, the MSCP and then the MSCP’s directors. The debt can also be transferred to recruitment agencies and their directors if they are found to be encouraging the use of PSC’s.

HMRC’s guidance in ‘Spotlight 32’ from February 2020 confirms that HMRC do not condone the use of MSCs and that they have suggested that they are looking into arrangements in the road haulage, healthcare and educational sectors. This issue is not going away.


How will I find out if my business is affected by the MSC legislation?

There is plenty being written about the current MSC cases, but it is likely that the first time you may absolutely know that you are in the firing line is when your company receives a Regulation 80 determination (tax) and/or a Section 8 Notice (National Insurance) from HMRC.

In 2022 and 2023, these Regulation 80 determinations and Section 9 Notices have been issued in the first quarter of the year to ensure that HMRC can issue assessments for the earliest tax year available to it. For example at the start of 2022, HMRC were issuing Regulation 80 determinations for 2017/18 because if they had issued these after April 5th 2022, the 2017/18 tax year would have “fallen away”.

This letter that accompanies the Regulation 80 determinations and Section 8 Notices, issued to your company, will explain that your accountant has been determined to be an MSCP for a specific tax year and as such your company is considered to be an MSC for that tax year and owes employment income tax and National Insurance.


What do I need to do if I receive a Regulation 80 letter from HMRC?

If you receive a Regulation 80 determination and/or a Section 8 Notice from HMRC, you have 30 days to appeal, from the date of the letter, against HMRC’s determination that your company is deemed to be an MSC. Please remember: tax deadlines are strict and you must not delay in taking action.

If you do not appeal the determination, you will be accepting the liability for the unpaid employment tax and National Insurance for the specific tax year in question.

Appeals should be emailed to mesimscteam@hmrc.gov.uk

If you have received a Regulation 80 determination and/or a Section 8 Notice letter, it is recommended that you begin gathering all evidence of your correspondence with your accountant / financial adviser, including emails, contracts and any other relevant evidence that you feel might support your appeal; i.e. , evidence of instances where you exerted your authority in the running of your company.

When going through your evidence you need to look for all proof that indicates that you were in control of all of your business’ finances and the way you made payments for the tax year(s) in question.

What you are looking to do is demonstrate that your business is independent and operated by you (it is not a contracting solution presented to you and managed by the MSCP).

Finally, remember this is your enquiry, your liability.  You do not need to rely on the MSCP to provide you with information or seek their advice – as an independent business it’s your responsibility to look after your own interests.


If HMRC are successful in establishing that your accountant / financial adviser is in fact an MSCP, and that you are therefore and MSC, then the liability becomes payable.

If HMRC are unsuccessful in establishing that accountants / financial advisers are operating as MSCPs, then all the determination letters will cease.


How can Caunce O’Hara help you?

If HMRC are successful in establishing that your accountant / financial adviser is an MSCP and you are therefore an MSC, then you will need to seek tax and legal advice.

Our partners at Markel Tax can assist you in fighting HMRC’s determination that your business is an MSC, if it is believed you have a legitimate case.

To ensure you can properly fight your case, our legal expenses and tax investigation insurance policy can help you by covering the legal costs incurred.

Find out more about legal expenses and tax investigation insurance on our website or click here to get a quote today.




  1. https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm3505




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