23rd February 2024
Written by Qdos Contractor
You’ll likely have heard about the Managed Services Company (MSC) legislation – a complex and ambiguous piece of tax law.
While this legislation doesn’t get as many column inches or as much airtime as IR35, it poses just as much of a threat. Arguably more of a threat – not just to contractors, but to others in the supply chain.
Following HMRC activity, the MSC legislation has been back in the news;
the Telegraph has recently reported on the issue, with our CEO sharing his thoughts on the rules and their wider implications.
As such, now feels like the right time to provide a much-needed update on the latest developments…
What is the MSC legislation?
Starting from the top, the MSC legislation looks to stop contractors from operating via their own limited company if the company itself is managed or controlled by another party – like an accountant.
HMRC argues that contractors shouldn’t benefit from a tax perspective if they have very little – or nothing at all – to do with running or controlling their business.
When this is the case, the contractor is subject to employment taxes, including PAYE and national insurance. In this sense, the rules bear a similarity with IR35.
Crucially, though, where contractors are unable to pay the tax bills, liability can be transferred to other related parties – including the accountant and potentially recruiters and engagers.
What’s the latest?
Before we get into that, we need to go back in time a little bit first.
In early 2022, over 1000 contractors were issued tax bills by HMRC. These contractors had used accountancies which HMRC believes were acting as Managed Service Company Providers (MSCPs).
An MSCP is a party that promotes or facilitates the use of MCSs – effectively, the provider of these tax avoidance vehicles.
It’s important to stress that these accountancies refute HMRC’s accusations. All of this will be contested at a tribunal.
How much are the tax bills?
“Staggeringly expensive” would be an understatement.
In some cases, contractors are staring down six-figure tax bills; as reported by
the Telegraph, some exceed £250,000.
Those are at the extreme end of the spectrum, but the nature of the legislation means that many contractors are facing bills into the tens of thousands.
Of those Qdos is supporting, the average tax liability is £57,000.
What’s been happening in the background?
Speaking to the Telegraph, our CEO, Seb Maley, said that contractors caught up in HMRC’s enquiries “had simply chosen an accountant with a specialism in their business profile” rather than actively engaging in non-compliance.
It’s why the MSC legislation has been likened to the Loan Charge, given these contractors were acting upon the advice of a third party.
Ahead of the tribunal case concerning the letters issued in 2022, we’ve been busy compiling evidence and putting together a legal defence for the contractors we’re representing.
How far progressed is the case?
As is usually the case with HMRC, the tax office is in no hurry. It will approach this as methodically as it does any other litigation, to recover what it deems are unpaid taxes.
With thousands of contractors involved, this is also likely to be a time-consuming case. While letters were sent in 2022, legal experts believe a final ruling may not be reached until 2028.
As things stand, a date for the first tribunal hearing is yet to be announced.
What can you do if you’re concerned or affected
HMRC has the power to investigate any contractor at any time regarding MSC compliance, but particularly those engaged by specialist contractor accountancies.
If you have any concerns or believe you may be affected, please don’t hesitate to contact our award-winning tax team on 0116 2690992 or [email protected].
