Managed Service Company Risk Checker
The Managed Service Company (MSC) rules, Chapter 9 Part 2 ITEPA 2003, are one of the most serious and least-understood tax risks for contractors. Unlike IR35, the MSC rules can transfer unpaid PAYE and NIC debt to you personally as a director. This checker screens your arrangement against the statutory involvement tests in s.61B(2) ITEPA 2003 and flags whether the accountancy services exclusion in s.61B(3) is likely to protect you. Answer each question about your provider or accountant honestly.
Managed Service Company Risk Checker
The Managed Service Company (MSC) rules, Chapter 9 Part 2 ITEPA 2003, are one of the most serious and least-understood tax risks for contractors. Unlike IR35, the MSC rules can transfer unpaid PAYE and NIC debt to you personally as a director. This checker screens your arrangement against the statutory involvement tests in s.61B(2) ITEPA 2003 and flags whether the accountancy services exclusion in s.61B(3) is likely to protect you. Answer each question about your provider or accountant honestly.
This result indicates a lower risk based on your answers. It is not a guarantee that the MSC rules do not apply. The assessment depends on the precise facts of your arrangement. If you are uncertain about any aspect, consult a specialist contractor accountant.
Confirm your figure with a contractor specialist
Estimates get you close. A specialist confirms your exact position, the most tax-efficient salary, dividend and pension split, and your IR35 status. No obligation, and we reply within one working day.
Get the full Umbrella vs limited company model and guide
Get the umbrella vs limited company model
Tell us about your situation and a specialist will confirm the numbers for your contract and the most efficient next step, with no obligation.
What are the Managed Service Company rules and why do they matter?
The Managed Service Company (MSC) rules, in Chapter 9 Part 2 ITEPA 2003 (ss.61A to 61J), are a separate and in some ways harsher anti-avoidance regime than IR35. Where IR35 targets arrangements where a contractor works like an employee through a personal service company, the MSC rules target contractors whose company is controlled or heavily influenced by a third-party provider, typically an accountancy or payroll scheme operator, rather than by the contractor themselves. The key difference: the MSC rules apply based on the nature of the provider's involvement in your company, not on the nature of the work you carry out for clients.
A company is an MSC only where all of the conditions in s.61B(1) are met, and the one that matters most in practice is s.61B(1)(d): an MSC Provider (a person carrying on a business of promoting or facilitating the use of companies to provide individuals' services) is involved with the company. What counts as being involved is set out separately in s.61B(2), which lists five ways a provider can be involved: (a) benefiting financially on an ongoing basis from the provision of the services; (b) influencing or controlling the provision of those services; (c) influencing or controlling the way payments are made to the worker; (d) influencing or controlling the company's finances or any of its activities; or (e) giving or promoting an undertaking to make good any tax loss. Any one of these limbs, combined with a provider that carries on an MSC business, is enough for the regime to apply.
Where the MSC rules apply, all income your company receives for your services is treated as deemed employment income and subject to PAYE and NIC, just as if you were directly employed. Unlike IR35, there is no deemed payment calculation or status determination statement process: the charge is automatic based on the structure of the arrangement. The rules also carry a particularly serious consequence: under s.688A ITEPA 2003 for PAYE (inserted by Finance Act 2007) and the equivalent Social Security Contributions (MSC) Regulations 2007 for NIC, if the company fails to pay the PAYE or NIC due, HMRC may transfer that debt directly to the director (you), to the MSC Provider, or to others who encouraged or were actively involved in the arrangement. This personal debt-transfer risk makes MSC exposure significantly more dangerous than a standard IR35 dispute.
The accountancy and legal services exclusion (s.61B(3)) provides that a person does not fall within the MSC Provider condition (s.61B(1)(d)) merely by providing legal or accountancy services in a professional capacity. In practice this protects a genuine accountancy practice that charges a fixed fee, provides compliance services (bookkeeping, accounts, tax returns), and leaves all decisions about salary, dividends, expenses and trading to the contractor. The exclusion is not a blanket safe harbour: HMRC guidance and the Christianuyi litigation confirm that where a provider goes beyond ordinary professional services and starts to influence or control financial decisions, or benefits financially from the arrangement, it can still be caught. The real risk arises where a provider operates a scheme across many contractors, shares in the financial upside, and makes or imposes decisions that properly belong to the director.
Frequently asked questions
What is a Managed Service Company?
A Managed Service Company is a personal service company where a third-party MSC Provider is involved with it in one or more of the ways set out in s.61B(2) ITEPA 2003. The provider must also carry on a business of promoting or facilitating the use of such companies (s.61B(1)(d)). Where the s.61B(1) conditions are met, the worker's income is taxed as employment income under Chapter 9 ITEPA 2003, regardless of whether their working arrangements would otherwise be outside IR35.
How is the MSC legislation different from IR35?
IR35 (Chapter 8 ITEPA 2003) applies where the nature of the work means the contractor would have been an employee if engaged directly. The MSC rules (Chapter 9) apply where the nature of the provider's involvement in the contractor's company means the arrangement is not genuinely contractor-controlled. A contractor can be outside IR35 on their working practices yet still caught by the MSC rules if their accountant or scheme operator meets the s.61B tests. The MSC rules also carry the debt-transfer risk, which IR35 does not.
What are the s.61B(2) involvement tests?
Under s.61B(2) ITEPA 2003, an MSC Provider is involved with a company if they: (a) benefit financially on an ongoing basis from the provision of the services; (b) influence or control the provision of those services; (c) influence or control the way payments are made to the worker; (d) influence or control the company's finances or any of its activities; or (e) give or promote an undertaking to make good any tax loss. Only one of these limbs needs to be met. The provider must also carry on a business of promoting or facilitating the use of companies (s.61B(1)(d)) for the regime to apply.
What is the debt-transfer risk and who does it affect?
If a company is caught by the MSC rules and fails to pay the PAYE and NIC due on its income, s.688A ITEPA 2003 (for PAYE) and the Social Security Contributions (MSC) Regulations 2007 (for NIC) allow HMRC to transfer that debt to other parties. The debt can be transferred to the director or associate of the MSC (the contractor personally), to the MSC Provider, and to any other person who directly or indirectly encouraged or was actively involved in the provision of the individual's services. This means that if your company cannot or does not pay, you can become personally liable for tax debts that may cover multiple years. This risk is active as soon as the arrangement is caught.
Is my accountant an MSC Provider?
Most qualified contractor accountants are not MSC Providers. The accountancy and legal services exclusion in s.61B(3) ITEPA 2003 means a person is not treated as involved with a company merely by providing professional accountancy services where the contractor controls their own company. A firm that charges a fixed fee, provides compliance services, and leaves salary, dividend, and trading decisions to you is not an MSC Provider. The risk arises with scheme operators who run a business of putting many contractors into standardised company structures, take a share of billings, or make financial decisions on the contractor's behalf.
Can the MSC rules apply retrospectively?
Yes. If HMRC determines that a company was an MSC in earlier tax years, it can issue assessments for those years. There is no time limit shorter than the standard discovery assessment rules, which are extended where there is a loss of tax brought about carelessly or deliberately. Contractors who have been in MSC arrangements should take advice about their exposure for prior years, not just the current year.
What is the accountancy services exclusion?
Section 61B(3) ITEPA 2003 provides that a person is not treated as involved with a company merely by providing legal or accountancy services in a professional capacity. In practice this protects a genuine accountancy business where the contractor genuinely controls their company and the accountant's role is advisory and compliance-based. Where an accountant goes beyond ordinary professional services and begins to influence or control financial decisions, or benefits financially from the contractor's income, the exclusion may not apply. This was the central issue in the Christianuyi Ltd case, where the provider was found to be an MSC Provider despite describing its services as accountancy.
Want to be sure of your position?
A calculator gives you the shape of the answer. We confirm your exact figure, your IR35 status and the reliefs that apply to you. Tell us about your situation for a no-obligation review.