If you thought IR35 was the only thing you had to worry about, I’m afraid you need to think again. HMRC has dusted off some fifteen-year-old legislation and is aggressively enforcing it. You may not have heard of it, or have heard of it, but – quite reasonably – believed it didn’t impact you and your business.
Unfortunately, the Managed Service Company legislation and HMRC’s inquiry into two accountancy service providers (ASPs) is currently ruining the lives of up to two-thousand business owners, and you could be next.
Company owners - heed this warning
Apologies for the apocalyptic and dramatic tone, but the devastating impact of these investigations cannot be overstated. We are actively supporting around forty-five IPSE members who are caught up in it; each of them with the same woeful experience.
About a year ago, they each received a ‘Regulation 80 notice’ from HMRC explaining that the accountant they had been using was, in the opinion of HMRC, a Managed Service Company Provider (MSCP). This means, again according to HMRC, that each of their customers – contractors like you – are Managed Service Companies (MSCs). The Reg 80s demand that, as MSCs, employment taxes are due on all income received via the MSCP.
Breaking down the jargon
There’s lots of jargon and acronyms to get used to here. The legislation sets out some definitions as follows:
Managed Service Company (MSC) – A personal service company that is influenced or controlled by an ‘MSC Provider’.
MSC Provider (MSCP) – An entity which carries on a business of “promoting or facilitating the use of companies to provide the services of individuals”.
What does MSC legislation do? (ITEPA 2003, Ch.9)
Applies employment tax charges to payments generated by a company where the following applies:
- An MSCP is “involved in the company” – i.e., controlling or influencing a company’s payments, finances and/or the services of individuals.
- The MSCP benefits financially on an ongoing basis from the provision of the services of individuals.
The eagle eyed amongst you will have noticed the phrase ‘involved in the company’. It’s disturbingly open to interpretation. All sorts of people are ‘involved’ in your company and your accountant is certainly one of them. Is the government really saying that simply by using an accountancy services provider, a business is being non-compliant with MSC legislation? Certainly, that appears to be what it is saying in the instances of these two ASPs. The legislation even includes an exemption for accountants, yet HMRC seems determined to apply it regardless.
Most worrying of all though, is that, as far as anyone can tell, these two ASPs aren’t doing anything different to the fifty or so other ASPs that are out there operating now. In other words, HMRC could quite easily apply the same twisted logic to thousands of other businesses, at the drop of a hat.
The impact - and what IPSE is doing to help
Quite what HMRC’s arguments are, we don’t know yet. We will have to wait for the first tribunals to hear them. These are expected later this year, but the whole process is like something out of Kafka’s novel ‘The Trial’. No one knows what is going on, nothing makes sense and the ‘defendants’ are bewildered and deeply, deeply worried. It is having very concerning mental health impacts on some of the members we have spoken to.
IPSE is determined to support our members through this, and with the help of Markel, we are pushing for a satisfactory outcome through the legal process.
We’re also pursuing a political resolution to this. We need someone senior in government to either justify these inquiries or put a stop to them. It won’t be easy – politicians are notoriously reluctant to intervene in legal matters, which this is, but we are going to keep pushing.
If you find a Reg 80 landing on your doorstep, it is very important that you act. You must appeal the determination within thirty days. You can find more information on MSC legislation on IPSE’s website. IPSE members can also access a template appeal letter.
If you are not yet an IPSE member, please be advised that you won’t be able to access the tax investigation insurance if you join us after you receive the Reg 80.
And finally, if you have any queries about MSC, we have set up a dedicated email address for you to direct questions to – [email protected].
An unexpected letter from HMRC is always a concern for contractors - could it be a tax investigation, or a wrongful IR35 status determination in the eyes of 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...
In this blog, an anonymised contractor explains how HMRC's MSC investigation has impacted them.
