Several figures and organisations from the UK contracting industry have warned that HRMC is using Managed Service Company (MSC) rules to target contractors. Over recent days, HMRC has launched investigations against two accountancy firms, both of which have many contractors as clients, for alleged breaches of MSC rules.
Churchill Knight & Associates and Boox are the two firms subject to HMRC investigation over claims they meet the criteria to be classified as a Managed Services Company Provider (MSCP), with many contractors who engage their services reporting that they have received unexpected tax bills for income tax and National Insurance in the 2017-18 tax year.
There have been warnings that, if HMRC continues to determine that firms providing accountancy services to contractors are MSCPs, large numbers of UK contractors operating limited companies could be classified as MSCs and face hefty tax bills
Qdos CEO Seb Maley has been among those to observe that the investigations against Boox and Churchill Knight might be a sign that the Treasury is accelerating its MSC compliance activity and may look to target other accountancy firms and potentially extract up to tens of millions in taxes from UK contractors.
HMRC has been accused by the Association of Independent Professionals and the Self-Employed (IPSE) of sending contractors “misleading” tax bills as they rushed to meet the April 5 2022 deadline, after which the tax deparment would have lost its right to pursue MSC claims for the 2017-18 tax year.
The timing of the investigations ahead of the April 5 deadline has been widely commented on, as has the scale of the bills contractors have reported receiving, with some saying they have been billed up to £50,000. One report observed that the payments being demanded by HMRC appeared to bear little relation to the money earned by contractors during the time periods in question and the tax that would be owed under PAYE were the contractor taxed as an employee.
Churchill Knight has responded to the investigation by asserting that “HMRC has made a mistake, and MSC legislation does not apply”. Such claims, amid numerous claims that tax bills sent by HMRC are misleading, have led to widespread recommendations that contractors appeal HMRC determinations that their limited companies are MSCs, including from IPSE and IT contractor website ITContracting.
Author: Steven English
08.04.2022
