Earlier this year, I received a letter from HMRC that would completely upend my life and leave a storm hanging over my finances. Let me tell you what happened.
Following HMRC’s decision to launch an investigation into two accountancy service providers for breaking managed service company legislation, I was sent a letter – or Notice of Regulation 80 to give it its official name - in the post. The letter said that despite being tax compliant, I could be forced to pay thousands of pounds for using an accountancy service provider during the tax year 2017-2018.
While I have always paid my taxes and followed my accountant's advice, the outcome of the investigation could potentially leave mine - and hundreds of other contractors’ - finances in tatters. If HMRC is successful in proving that the accountancy service provider I used was a Managed Service Company Provider, then I alongside many others will be deemed as a Managed Service Company. We will therefore have to pay employment taxes and NI - thousands of pounds - to HMRC.
Since receiving the letter, I have been extremely anxious about how this will play out. In particular, I’ve been frantically asking myself the exact same questions over and over again; could HMRC extend their investigation to other tax years; when will the investigation close; and what will the outcome of the investigation be? Moreover, I have been concerned about the obscene amount of money that HMRC is requesting. The money bears little to no relation to my 2017-2018 income and has seemed to have ignored the corporation and dividend tax that I have already paid for that year.
With the outcome of the investigation being months or potentially years away, I have had to protect myself against fines for 2017-2018 and any other subsequent years. For example, I’ve cancelled holidays and have had to cut my spending until I know whether I owe HMRC or not. The process has been extremely difficult on myself and my family as it has forced us to completely change our financial plans overnight.
Following IR35 and the cost-of-living crisis, the letter has also given me a moment to pause and reflect on the benefits of self-employment. While I love the independence and creative freedom of self-employment, the actions of HMRC alongside the current economic landscape has given me serious doubts about the financial benefits of freelancing going forwards.
Overall, the situation has made me feel like burying my head in the sand. However, I know that won’t solve my problems. With help from IPSE, I have submitted an appeal letter to HMRC. I’ve pointed out errors such as the fact that the letter mistook my accountancy service provider for another, and I have repeatedly made it clear that I consider my business to be a limited company, rather than a Managed Service Company.
A month following my appeal letter, I am yet to receive a reply. I’ve called HMRC’s helpdesk for confirmation and an automated message gave me an email address of someone that works at HMRC. While I’m not sure if the person behind the email address is leading a team of people working within the organisation on MSC appeal letters, I have been given the impression that there is only one single person working on the investigation. Nevertheless, I have followed up via email and have asked for written confirmation on the appeal letter. Hopefully, this will lead to action, however, I am currently unimpressed with HMRC and their approach to the investigation.
While I don’t know how it will end, I will continue to work with IPSE in fighting against HMRC and their investigation. Their attack against accountancy service providers could destroy the livelihoods of hundreds of self-employed workers and I implore anyone else in the same situation to follow my example in reaching out to IPSE and using their legal expertise.
Visit our MSC company advice page to keep up with the latest updates, and you can find more support and useful information with our MSC guide.
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