Determinations of accountancy providers as Managed Service Company Providers by HMRC

IPSE is aware that at least two accountancy services providers have recently become subject to an investigation by HMRC under the scope of Managed Service Company legislation, related to the tax year 2017-18. We are also aware that some IPSE members are being affected by this, and there are strong suggestions that other accountancy providers and their company clients are being, or might soon be, affected in a similar way. If you are affected, you need to take action now.

What does this mean?

If HMRC determines that an accountancy provider is in fact a Managed Service Company Provider (MSCP), it may subsequently determine that its company clients are Managed Service Companies (MSCs).

Under the legislation, MSC earnings within the relevant tax year are treated as being like employment income, making the contractor liable to pay outstanding income tax and National Insurance on those earnings – even if their engagements through the MSC were outside IR35.

How do I know if my company is affected?

Your provider may have already contacted you to inform you that HMRC has deemed them to be an MSCP. Your own company may also be contacted directly by HMRC to state its determination that it is an MSC. This will be done via a ‘Notice of Regulation 80 determination’ letter.

Due to legal limits on how far back HMRC can go to recover tax, it must state its determination that your company was an MSC in the 2017-18 tax year by 5 April 2022. If you are not contacted by this date, HMRC loses its right to pursue its MSC claim against you for the 2017-18 tax year in future.

Calculation of the tax owed is misleading

In the few examples we have seen so far, the amount which HMRC say is due is highly questionable. We believe HMRC has rushed out these notices to meet the 5 April deadline and hasn’t properly calculated the tax that would be owed, if indeed it is able to establish that the accountant is an MSCP. In most cases the actual tax bill will be significantly less than stated in the determination notice.

IPSE members will receive support to establish the correct amount of tax due, in the event the accountant is unable to successfully appeal the decision that they are an MSCP.

HMRC has contacted me to say that it believes my company is an MSC – what should I do next?

If you are an IPSE member that is affected by this situation, please write to us at [email protected] with details of your case for further support.

IPSE’s strong recommendation is that if you are contacted by HMRC, and it states its position that your company is an MSC, you should appeal its determination immediately.

If you do not appeal within 30 days of the date of the letter, HMRC will assume that you agree to its determination. We cannot stress enough that you should appeal the determination. Do it as soon as possible, and certainly within 30 days.

Visit our MSC company advice page to keep up with the latest updates, and you can find more support and useful information with our MSC guide.