In the Pre-Budget Report in December 2006, Chancellor Gordon Brown announced his intention to implement new rules to assess a contractor’s limited company structure. The tax rates applied to contractors limited companies are now based upon their classification under these new rules.
These rules came into effect in April 2007.
There are, in general, three classifications:
PSC [Personal Service Company]
PSC with no MSCP [Managed Service Company Provider] involved
PSC with a MSCP involved becomes a MSC [Managed Service Company]
The payment structures and tax treatment for each is:
PSC's can pay salary and dividends with all usual expenses allowed.
PSC with no MSCP involved is as PSC.
MSC with a MSCP involved has to pay all income as PAYE.
The key factor in choosing a service provider for a limited company is to ensure they are not classed, within the terms of the legislation, as being involved.
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