Managed Service Companies

A Managed Service Company (MSC) is a composite service company structure that offers individual contractors a 'parent' company to manage their accounts, invoices and general administration. These individual contractors then become shareholders in the company but do not have to deal with any of the management of the company or any of the jobs traditionally taken on by directors. The management of the company is handled by a service-provider, allowing the contractors to simply receive their salary and increased dividends. This system is used in order to give the contractor a more efficient working / contracting environment, without having to waste contracting hours on time-consuming paperwork.

The 'Composite Company' style structure is the Managed Service Company structure most often used. Under this system each contractor in the company is a non-director shareholder, with approximately 15-20 contractors managed by the overall scheme provider. At the same time, such a scheme also offers certain financial benefits, from paying lower wages and higher dividends to allowing higher expenses claims and avoiding National Insurance and higher rates of income tax.

However, because of the problems associated with the IR35 legislation brought in by the Inland Revenue (designed to stop contractors declaring themselves self-employed) the Treasury introduced the "Tackling Managed Service Legislation" in 2007. This sought to deal with the use of Managed Service Companies' composite structures to avoid income tax and NI, and ultimately meant that most contractors chose to move from Managed Service Companies to Umbrella Companies that were mostly exempted from the legislation.

These Umbrella Companies also threw up their own challenges however and many contractors moved onto even more robust tax solutions and structures, known as Employee Benefit Trusts.

The Bedouin Group offers Employee Benefit trust for Contractors in the UK.