Government Should Scrap ‘Outdated’ MSC Legislation

Professional Passport, the UK’s largest independent assessor of payment intermediary compliance is calling upon the Labour government to consider scrapping the Managed Service Company (MSC) legislation, citing its increasing irrelevance in today’s market landscape.

Key points supporting the call for review include:

1. Shift in IR35 Responsibility:With the introduction of Off-Payroll Working rules, end clients are now responsible for making IR35 status determinations, addressing one of the primary concerns that led to the MSC legislation.
2. Enhanced Enforcement Mechanisms:HMRC can now more efficiently enforce rules at the end-client level, making the MSC legislation’s approach to enforcement outdated.
3. Changes in Debt Recovery:The ability to recover debts from end clients with substantial assets has mitigated concerns about MSCs avoiding payment through closure or bankruptcy.
4. Technological Advancements:The introduction of Making Tax Digital (MTD) and advancements in accounting software have transformed how contractors manage their businesses. Those advancements now directly conflict with many aspects of the MSC legislation.
5. Increased Complexity: The current interpretation of the MSC legislation has created a complex landscape that is challenging for individual taxpayers to navigate, potentially leading to unintended consequences. It is impossible for an individual tax-payer to assess an accountant’s status.

“The Managed Service Company Legislation, introduced in 2007, is no longer fit-for-purpose and is now outdated and should be binned,” said Crawford Temple, CEO of Professional Passport. “The professional employment market has undergone significant changes since its inception, and we believe it’s time for a comprehensive review of this legislation that will lead to it being scrapped. Removing it could bring much-needed clarity to the tax system, aligning it with the current market realities without compromising on compliance or revenue collection. I would urge the Government to listen to industry experts and heed our advice.”