Reply to: is MSC the endgame for LTD contractors ?

[RobScott]

Most of the general public have a similar view, as well as most permies, and around 50% of the contractors I've met.
It's not a minority view.

And let's face facts. PSCs are an anomaly. Building contractors (which is the majority of contractors) have CIS. Other countries simply tax PSC as though they are individuals.

The reality is we are lucky that we get tax benefits at all. We get paid considerably more than permies and also pay less tax. In a country that has a huge debt, and a deficit that's only going to make the debt worse.

So look on the bright side. We don't have it anywhere near as bad as the rest of the country. And if I have to pay more tax to make a better society I am more than willing.

It is a 1st world problem really. Not unfair. And not punitive either. You can always go umbrella.

nice. fair and true statement

[eek]

It's also probably worth posting what I suspect is HMRC's naive view of how IR35 works.

Company decides to save money / ensure their staff get more by taking them on via a PSC. To do that they use agencies who suggest you create a limited company because it gives you more money and is less hassle for them. The contractor asks how should I do that and the agency provides a list of FCSA accountancy firms that pay the agency a commission for every customer referred to them.

Which is why the Chapter 9 MSC legislation is being used here because HMRC suspect that if it wasn't for the accountancy firms these people would be being paid via PAYE and so want it to be done that way.

[jamesbrown]

But this thread was mainly to discuss if MSC is HMRC's avenue to shut down working through a PSC or make it so bloody difficult that only a small minority work in this way.

Not especially, but it is certainly true that Chapters 9 and 10 of ITEPA offer HMRC a much better cost:value proposition because, crucially, they can lump a bunch of contractors into the same bucket based on similar working practices (Chapter 10) or similar business practices (Chapter 9), rather than investigating contractors individually (Chapter 8). So, putting aside any gripes about HMRC methods and practices, the incentives created by the legislation are obvious and you cannot really criticise them for exploiting these incentives.

[goldengoose]

Take it you've never read the https://forums.contractoruk.com/hmrc...companies.html thread . Everything you've posted above has been discussed many times there including the actual Costelloe judgments which provide HMRC with the justification for this additional land grab.

Yup ! I have . But that thread is a mixed bag of things and majority speculative and mostly the opinion of members rather than legals or accountants. I already got my practises reviewed by a professional who's with the opinion that HMRC would not find myself an MSC or my ACCOUNTANT an MSCP. They are a small local accountant with multitude of clients.

But this thread was mainly to discuss if MSC is HMRC's avenue to shut down working through a PSC or make it so bloody difficult that only a small minority work in this way.

Interesting to see that with BOOX , they had a client with 90m turnover who were send a letter from HMRC who believed them to be an MSC. I really do think HMRC are not going to stop until everyone is PAYE

[eek]

HMRC are trying to get a ruling that means if your accountant has recommended you a salary / dividend , then this falls under 'financial control', this is just one of the few points . This is a huge stretch . A few of my friends were with CK and caught up in this

If HMRC can convince a judge that constitutes financial control , then this will not only impact contractors but majority of PSC's (albeit my accountant does recommend this but i never really follow it ). With costelloe case , i think anyone with little knowledge could tell you that's MSC. CK / BOOX ruling has huge ramifications if HMRC succeed

Take it you've never read the https://forums.contractoruk.com/hmrc...companies.html thread . Everything you've posted above has been discussed many times there including the actual Costelloe judgments which provide HMRC with the justification for this additional land grab.

[goldengoose]

MSC - no one cared about it until Boox and CK were hit by it this time last year.

HMRC are trying to get a ruling that means if your accountant has recommended you a salary / dividend , then this falls under 'financial control', this is just one of the few points . This is a huge stretch . A few of my friends were with CK and caught up in this

If HMRC can convince a judge that constitutes financial control , then this will not only impact contractors but majority of PSC's (albeit my accountant does recommend this but i never really follow it ). With costelloe case , i think anyone with little knowledge could tell you that's MSC. CK / BOOX ruling has huge ramifications if HMRC succeed

[eek]

Because at the end of the day you can put a case forward for why you are not an MSC and can back it up with evidence , but the decision wether to continue the case solely lies on HMRC's judgement. There is no arbitration or mediation (other than paying a tax lawyer). We have seen so many cases going FTT and clear from get go HMRC were wrong and still pursued the contractor i.e recent QDOS case

It then becomes a situation where you have to calculate if it's cheaper to pay up what HMRC have asked (even though not at fault) or if you have a solid case to take court and will pay less after court proceeding. Either way almost everytime HMRC don't agree with you , there will be a substantial cost even if found not at fault.

It's very one sided and biased, there is no protection for the taxpayer for HMRC misuses of power. Most the time HMRC have made their mind up

Worth noting also , IR35 is insured against and as long as you work properly your insurance backs you. But MSC , no one wants to touch it, no one insures you for it so all the liability is on you personally

MSC - no one cared about it until Boox and CK were hit by it this time last year.

[goldengoose]

If that's all true and your accountant isn't one that is offering the types of service that raise MSC red flags then what are you worried about?

Because at the end of the day you can put a case forward for why you are not an MSC and can back it up with evidence , but the decision wether to continue the case solely lies on HMRC's judgement. There is no arbitration or mediation (other than paying a tax lawyer). We have seen so many cases going FTT and clear from get go HMRC were wrong and still pursued the contractor i.e recent QDOS case

It then becomes a situation where you have to calculate if it's cheaper to pay up what HMRC have asked (even though not at fault) or if you have a solid case to take court and will pay less after court proceeding. Either way almost everytime HMRC don't agree with you , there will be a substantial cost even if found not at fault.

It's very one sided and biased, there is no protection for the taxpayer for HMRC misuses of power. Most the time HMRC have made their mind up

Worth noting also , IR35 is insured against and as long as you work properly your insurance backs you. But MSC , no one wants to touch it, no one insures you for it so all the liability is on you personally

[goldengoose]

Most of the general public have a similar view, as well as most permies, and around 50% of the contractors I've met.
It's not a minority view.

And let's face facts. PSCs are an anomaly. Building contractors (which is the majority of contractors) have CIS. Other countries simply tax PSC as though they are individuals.

The reality is we are lucky that we get tax benefits at all. We get paid considerably more than permies and also pay less tax. In a country that has a huge debt, and a deficit that's only going to make the debt worse.

So look on the bright side. We don't have it anywhere near as bad as the rest of the country. And if I have to pay more tax to make a better society I am more than willing.

It is a 1st world problem really. Not unfair. And not punitive either. You can always go umbrella.

I'm not worried About paying tax. I am worried about the certainty. If HMRC slapped a 5-10% tax on a PSC I would pay that .

However , the issue is HMRC coming at a later date and asking for a 6 figure tax repayment when you had done nothing wrong. It's calculated to hurt people who have not done anything wrong. There used to be certainty in the tax system and individuals could prepare but HMRC seem to be making up their own tulip now and circumventing laws designed to protect us or trying to circumvent those laws .

Well , i don't see your argument of We get paid considerably more than permies and also pay less tax. In a country that has a huge debt, and a deficit that's only going to make the debt worse. That's the governments issue , we pay more into tax than most permies , if the government wants to line their pockets and mismanage finances it is not for us to be punished.

If on any given tax return HMRC said , hey we think you miscalculated your taxes by X amount as we believe this X leguslation applies to you , then it is more manageable then 4-6 years later sending a letter saying you owe $150,000 +£15,000 interest etc ..

Also having a good day rate doesn't mean it's okey to be taxed the tulip out of, especially when you need to prepare for downtime between work .

[Lance]

There is an ideology and culture within HMRC that view all contractors as tax avoiders/evaders.

Most of the general public have a similar view, as well as most permies, and around 50% of the contractors I've met.
It's not a minority view.

And let's face facts. PSCs are an anomaly. Building contractors (which is the majority of contractors) have CIS. Other countries simply tax PSC as though they are individuals.

The reality is we are lucky that we get tax benefits at all. We get paid considerably more than permies and also pay less tax. In a country that has a huge debt, and a deficit that's only going to make the debt worse.

So look on the bright side. We don't have it anywhere near as bad as the rest of the country. And if I have to pay more tax to make a better society I am more than willing.

It is a 1st world problem really. Not unfair. And not punitive either. You can always go umbrella.

[ladymuck]

I am well aware of the legislation. I have an accountant I pay monthly , a flat fee , no special premiums or tiers. I set up my company elsewhere before joining this accountancy firm.

- I use FreeAgent , this is provided by the accountancy and should I leave or go on my own then I pay the the fee for freeagent. The accountancy does not have a custom portal
- I have full control over my bank accounts , I make all payments for expenses , payroll , TAX etc .. the accountant does not and never has had this access. My accountant has never had any say in the finances of my business , how i run it , how i pay and what i pay etc .. I am also responsible for reconciliation , raising invoices , chasing invoices , finding work , reviewing contracts
- A tax efficient salary is recommended but It is just a recommendation and I have taken out different salary / dividend combination. In some cases maybe not the most tax efficient
- The account prepares my Quarterly VAT and Corporation Tax. But they cannot submit prior to my approval and I make good the payments

That is as much involvement as the accountant. I record expenses , keep records of mileage/receipts. I have my own company branding , website , methodologies . i have had 11 clients in the last 4.5 years . The accountant never makes the final decision , in fact there is not much communication between myself and them other than when there is a VAT or Corp tax filing or if I need general accounting advice i.e Is Company car Benefit In Kind if i use it partially for business , what is the correct expense type for a lunch with a client ..
There are many things that I know , but i'm no accountant and in the last 2-3 years i have turned over on average 200-250k a year.Thats alot of revenue to do it solo , especially considering I have average accounting skills at best.


The costelloe case highlighted some familiar workings of most contractors, except for the part where the 'accountants' had access to bank accounts and were doing everything financial and passing on the wages after all deductions.

HMRC have blurred the lines and with their recent cases againt boox and ck they are trying to create a situation whereby majority of contractors will be caught . A situation where you are probably only not caught if you do your own accounts

If that's all true and your accountant isn't one that is offering the types of service that raise MSC red flags then what are you worried about?

[goldengoose]

Life is unfair....
get used to it

Wonderful. Thanks for the heads up, I'll remember that the next time I ask for your opinion.

Maybe unfair was not the word , but it is punitive from HMRC. There is an ideology and culture within HMRC that view all contractors as tax avoiders/evaders.

In all fariness they can do it , as we have seen with the IR35 campaigning . majority of contractors are not bothered other than what is in their interest

[Lance]

It's an unfair system

Life is unfair....
get used to it

[jamesbrown]

This is my point , HMRC can accuse you and send you a tax bill and the onus is on you to defend it. can cost you 50-100k to defend a case. I know some friends who have paid their MSC bills on account until the ruling for CK and BooX is decided. Even though they were not MSC , it is cheaper to pay up.

It's an unfair system with no taxpayer protection , HMRC can accuse any PSC with no recourse

I think this is just a misunderstanding of how tax disputes are settled. There’s nothing unique about the MSC legislation in this regard. A POA just stops interest accruing, it isn’t an admission of guilt, it’s purely an option for the taxpayer to mitigate interest in long running disputes. These disputes are resolved at a tax tribunal and, ultimately, the courts, which creates new case law from the UTT upwards. That process takes years. Yes, HMRC are probably overreaching, but what’s new? Also, if you look at the MSC thread, it’s hard to conclude that it isn’t a logical move by HMRC. There are a lot of accountants (nominally) out there who are pushing their luck. If you’re with an accountant that also offers an umbrella, for example, reconsider that now. It’s hard to view this as anything other than a “solution” that is probably caught by the MSC legislation.

[goldengoose]

You are missing the point. Their is no way to defend yourself except go to FTT. They stand your case over and you wait x years.

This is my point , HMRC can accuse you and send you a tax bill and the onus is on you to defend it. can cost you 50-100k to defend a case. I know some friends who have paid their MSC bills on account until the ruling for CK and BooX is decided. Even though they were not MSC , it is cheaper to pay up.

It's an unfair system with no taxpayer protection , HMRC can accuse any PSC with no recourse