Independent Authors SIG, summer 2007

Managed Service Companies

New legislation that affects Managed Service Companies (MSCs) has caused much confusion, not just in the IASIG, but also amongst freelancers and contract workers in general.

An excellent starting point to understanding the changes is Tackling Managed Service Companies ( A worker can go into business on his or her own account as a self-employed person (sole trader or partnership) or by setting up a company, which HM Revenue & Customs (HMRC) calls a Personal Service Company (PSC). (According to the PCG (, the term has no basis in law, they do not use the term, and they warn contractors to be wary of the term.) Some PSCs supply the worker's services directly to the end client, while others find work through an agency.

MSCs are intermediary companies through which the services of a worker are provided to an end client. The problem with these is that, unlike with a worker's own limited company, the worker in an MSC is almost invariably not in business on his or her own account and is not exercising control over the business. This control lies with the provider of the MSC. HMRC points out that some MSC schemes advertise this lack of control, and gives an example from an MSC scheme provider's website: 'We administer your limited company: we manage your company bank account… [You are] an employee operating on a limited company basis.'

HMRC will now treat payments received by workers using an MSC as employment income subject to the normal PAYE and National Insurance contribution rules. Their measures specifically target MSC schemes and there will be no wider consequences for people who work through their own limited companies or as sole traders or in partnerships.

Sole traders and agencies

Many agencies avoid working with sole traders, and require workers to contract through their own limited companies, to prevent the agency incurring potential tax and National Insurance liabilities if the worker were to default on paying HMRC.

On the other hand, many translators operate as sole traders, and yet they usually find work through agencies (personal communication with Nadia Phillips, former editor of the North West Translators' Network ( newsletter.

Alison Peck ( has occasionally worked through an agency that supplies teachers for Further Education colleges and other educational establishments. In that field, workers invariably are treated as PAYE employees of the agency.

Why the apparent discrepancies? Mark Clifford at Clifford Sells Ltd told me that in the public sector many organizations oblige agencies to engage workers under PAYE and show how the charge rate is calculated. Their aim is for agencies to compete on quality and availability, not price. Technical communicators who use agencies often work at one client's site for many months. Translators work on relatively short contracts, often from home, and often, they have multiple contracts. Therefore, the risk of an agency being liable for unpaid tax or National Insurance is considerably less with translators than with technical communicators. Also, with a sole trader, the agency's contract is with an individual. With a limited company contractor, the agency is one step removed from the individual, thus further decreasing its risk.

Tax and membership fees

'Can one's ISTC membership fee be offset against profits for tax purposes?' asked Marian Routledge.

The ISTC is on HMRC's list of recognised professional bodies, and so your company can reimburse your subscriptions tax-free and offset that payment as a payroll expense for corporation tax purposes, noted Geoff Lane. For the rules, see, and for the entry itself (Scientific and Technical Communicators, Inst. of), see

Peter Finch mentioned that you should also be able to offset subscriptions to magazines and journals that you use to keep your professional knowledge up to date. As usual, talk to your accountant.


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