MSC Legislation: what is it and why are HMRC using it now to nail contractors?

[cojak]

I’m not sure that everyone has noticed this but there’s a thread in HMRC Enquiries that all contractors with accountants should read:

Churchill Knight & Boox clients being investigated as Managed Service Companies - Contractor UK Bulletin Board

What is the Issue?

Basically, HMRC are going after these accountants’ clients because said accountants are managing their clients too closely for them to be in business for their account.

(Chapter 9 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003
Income Tax (Earnings and Pensions) Act 2003 (legislation.gov.uk)

What does ‘managing them too closely’ mean?

We aren’t sure, but think that it has to do with

• accountant using their own portal and auto-filling fields, and/or
• accountants using 2-tier payment options for when a contractor is in and out of contract

Managed Service Company legislation: unpaid PAYE and Class 1 National Insurance contributions avoidance schemes (Spotlight 32) - GOV.UK (www.gov.uk)

Why now?

Who knows? It could be that the stars (or legislation) are aligned to make this a successful line of attack by HMRC.

HMRC seem to be using this and the outside/inside IR35 fee-payer legislation in a pincer movement to force all contractors into inside IR35 contracts.

From HMRC’s pov, it’s so much cheaper and cost-effective to go after many contractors' customers (fee-payers) or suppliers (accountants) than it is to go after single contractors.

More information here:

As HMRC tries for new scalps under the MSC legislation, 150 is the magic (yet ominous) number (contractoruk.com)

https://forums.contractoruk.com/acco...contracts.html

(PS - I'll update this with feedback to make sure that it's as accurate as we can make it.)

[cojak]

And if you are reading this after getting that brown envelope:

Make sure that you have solid answers to HMRC’s accusations. Create a folder if you don’t have one already and organise it with with EVERYTHING that shows that you are a businessman. Dig out all correspondence for organising your Ltd, Vat, email instructions to your accountant, and everything else (digital and paper) that shows that you set up and run the Ltd on your own. Also demonstrate that you make all the financial decisions for your company. Make sure that those answers are given to your tax advisor and your MP.

Here are tips to show that you are outside IR35: https://www.contractoruk.com/private...side_ir35.html

And remember to put all of this evidence into your appeal to HMRC - you have 30 days from the date of the letter to return it.

[cojak]

I had an email from IPSE today, saying that they're running a webinar on Thu (26th May) about this:
Managed Service Company Legislation … and why you need to be aware of it | IPSE
NB "This session is free of charge to attend for both members and non-members."

So, it might be worth registering if this topic affects you. (I don't know whether it will be possible to watch a recording later.)

Thanks hobnob.

[cojak]

As people may not notice this article I will point it out here Directors, HMRC V Gradidge proves naivety is no excuse if MSC debts get transferred to you (contractoruk.com)

It relates to transfer of MSC debts to a director (who claims to have not even realised he was a director).

Thanks eek.