ContractorCalculator, in conjunction with tax specialist David Kirk & Co has set up the Managed Service Company (MSC) Survivors Group in response to HMRC’s move to investigate contractors and accountants who they believe are caught within the Managed Service Companies (MSC) Legislation.
The MSC Survivors Group is urging contractors to establish if their accountant is being investigated by HMRC for the MSC legislation which could mean that they are under threat of investigation.
Key points for contractors to note:
- The MSC legislation contains brutal debt transfer rules, which can make the contractor personally liable.
- HMRC can demand tax under normal enquiry windows for the last 4 years.
- Under the MSC legislation, if the contractor is caught, all monies need to be treated as income, a bit like IR35 – irrespective of the IR35 position.
- Additional tax bills are likely to be 15%+ of the revenue already earnt.
- The tax liability initially sits with the contractor’s company. Then, via debt transfer rules, it passes to the company’s directors. If neither the contractor nor its directors can pay, it passes to the accountant.
Commenting, Dave Chaplin, CEO and founder of ContractorCalculator said: “Contractors must not bury their heads in the sand and must act now. If they have received a letter from HMRC then it must be deal with. Contractors who have tax investigation insurance must speak to their insurer immediately as failing to inform them early may invalidate a later claim. And for any contractor who isn’t insured, they should seek advice from a tax defence specialist.
“For those contractors who haven’t received a letter, I would urge them to contact their accountant to establish if HMRC has opened an enquiry with them.
“This latest move by HMRC opens up the door to accuse any accounting firm that charges a fixed fee that it is a Managed Service Company provider which is clearly nonsense.
“What’s even sillier, is that since the MSC legislation came into effect in 2007 we have seen the rise of online bookkeeping and accounting services, the rise of the SaaS-based subscription revolution, and the push by HMRC to Making Tax Digital. The MSC legislation and how the common law emerged runs counter to that. A mess will ensue.”