Introduction

Managed service company advice

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Introduction

Welcome to IPSE’S Managed Service Company Hub, where you will find everything you need to know about the MSC legislation and how it might affect your business. We’ve put the hub together in light of recent HMRC activity in this area.

The MSC legislation was implemented in 2007. It was designed to stop contractors being formed into groups and operating through companies, of which they had little or no involvement. Instead an MSC Provider (MSCP) would run the company. The legislation ensured that employment tax and National Insurance would apply where the company was in fact an MSC. The legislation was seen by many, including HMRC, as being effective. It shut down the MSCPs, the avoidance stopped and managed service companies were rarely mentioned again.

Fast forward to today and HMRC is looking again at the MSC legislation, but seeking to apply it much more broadly. Two specialist accountancy service providers have been targeted. HMRC has taken the view they are MSCPs and has written to their customers saying they are MSCs. It feels like an attack on a whole sector and indeed it is quite possible that HMRC will expand its investigations beyond just those two accountants.

It remains to be seen where the current enquiries will end up, but we hope common sense will prevail – using an accountant doesn’t mean you’re not an independent business, making decisions on behalf of the company. IPSE is helping a handful of members caught up in this and we will help any and all members who might come under the glare of a future MSC investigation.

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How can IPSE support you?

How can IPSE support you?

 

IPSE members will receive a template appeal letter, outlining that you disagree with the determination notice and that you fall outside of the scope of the MSC legislation.

Members can contact [email protected] on receipt of a determination letter and we can support you with advice, regular Q&A sessions with all affected members and information about how your membership will protect you from the next steps of HMRC’s enquires.

In addition to the insurance position for all IPSE members, IPSE Plus members will also benefit from the tax investigations service if HMRC request documents under HMRC’s information gathering powers from your company prior to an assessment being raised. The tax helplines for all members offers advice for this matter and any other tax or legal enquiry.

Template: MSC Appeal Letter

If you get a Regulation 80 determination notice, you need to lodge your appeal within 30 days. If you do not appeal within the deadline, you run the risk of accepting the liability.

IPSE’s strategic tax partners Markel have drafted a template appeal letter which is exclusively available to IPSE Plus and Standard members, for free.

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Advice on the appeal process from Markel

Appeals must be lodged with HMRC within 30 days of the date of the determination, which may be a protective determination or a final determination.

IPSE’s strategic tax partners Markel have supplied advice on the appeal process which is exclusively available to IPSE Plus and Standard members, for free.

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Managed service company legislation guide

If HMRC determines that an accountancy services provider is in fact a Managed Service Company Provider (MSCP), this means that HMRC believes that the accountancy services provider carries on a business of “promoting or facilitating” the use of companies to provide the services of individuals and that the accountancy services provided is also “involved with” that company (see below: “What is a Managed Service Company Provider”).

What you need to know

What you need to know


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Webinar: Your questions answered

Your questions answered

 

IR35 one year on and Managed Service Companies: Your questions answered

Recorded on 21/04/2022

12 months since the changes to off-payroll legislation in April 2021, navigating IR35 still remains a minefield for contractors. On top of this, there are concerns over managed service company legislation.

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FAQ's

FAQ's

How do I know if my company has been affected by a PAYE review of my provider?

Your accountancy services provider may contact you with the information that they have been deemed by HMRC as a Managed Service Company Provider (MSCP). Your company will also likely receive a Notice of Regulation 80 determination letter from HMRC.

If you are unsure if your company has been affected, you can contact your accountancy services provider to check if they have been determined as a MSCP. Alternatively, if you have been notified by your provider but yet to receive a determination letter, you can write to HMRC to check.

What is a Regulation 80 notice of determination?

A Notice of Regulation 80 determination is commonly used by HMRC to inform that unpaid employment income tax and National Insurance is due for a certain tax year. Under the Regulation 80 rules, determinations can be issued within four years of the end of the affected tax year.

In the case of MSC legislation, a Regulation 80 notice of determination letter would be sent to your company to inform you that your accountancy services provider has been determined as a MSCP and that your company is now deemed a MSC. HMRC would then outline their determination of unpaid PAYE income tax and National Insurance due by your company for the affected tax year.

Example of a Regulation 80 determination letter

 

What support is IPSE providing members affected by MSC investigations?

IPSE will help you with your appeal and, if HMRC decide in their final opinion that the accountant is an MSCP, you can claim on the tax investigation insurance.

Appeal

On receipt of a determination notice, we strongly advise all IPSE members to appeal within the 30 day deadline.  We can provide you with a template appeals letter or advise you on what to put in your appeal letter. Your accountant may also provide with an appeal letter. The letter should clearly state that you, on behalf of your company, appeal the determination, provide an outline of the grounds for appeal and requested that the tax charge be postponed.

Stay in touch with IPSE

Members should contact [email protected] and we can provide you with the template appeal letter and specific advice around your individual case. In addition, IPSE’s tax and legal helplines can be used by members looking for legal support by logging in to IPSE’s website here.

Final phase of the investigation

At some point – it could be months after you receive the Reg 80 determination notice - HMRC will take a final decision on whether the accountant is an MSCP. If it decides it is an MSCP, IPSE members that wish to challenge HMRC determination can claim on the tax investigation insurance. A Markel Tax investigations specialist will be appointed. The fees will be covered subject to the terms of the insurance policy IPSE has with Markel – to defend the member’s position, where the member has a reasonable prospect of reducing the liability due to HMRC.

There is one further possible – but perhaps unlikely – scenario in which HMRC contact you to request documents under HMRC’s Information gathering powers prior to reaching a final decision. IPSE Plus members will also benefit from the tax investigations service if HMRC make such a request prior to an assessment being raised or a decision upon the MSC status being reached.

What happens if I don’t appeal my Regulation 80 notice within 30 days?

You will be accepting the liability for the unpaid employment income tax and National Insurance specified in the determination notice if you do not appeal within 30 days of the date HMRC sent you the determination notice.

HMRC can still consider a late appeal, subject to a good reason being provided for the delay in appealing.  You will need to contact HMRC to request permission to make a late appeal.

IPSE strongly recommends that you appeal within the 30 day notice period otherwise you will be accepting the liability and could risk HMRC not granting a late appeal.

I’ve already appealed but would like to add more information to it – can I amend my appeal?

Yes – once HMRC have acknowledged receipt of the appeal, you can amend the contents of the appeal letter.

The important step is to appeal the determination notice within the 30 day notice period. Thereafter you can then add information to your appeal letter or alter the reasons behind the appeal at any point without being penalised by HMRC.

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What is an ‘independent review’ and why should I ask for one?

In the event HMRC determine, in their final determination, that the MSC legislation does apply to your company, an independent review affords you the opportunity to state your case to an HMRC officer who has not previously been involved in the case, and to provide factual evidence and detailed reasoning as to why the legislation does not apply.

Our recommendation is that when lodging your appeal against your Regulation 80 determination, you should also include notification to HMRC that you wish to exercise your statutory right to Independent Review once HMRC has issued its final conclusion of the matter.

However, we are aware that HMRC have already responded to some applications for an independent appeal with notification that an officer has been appointed to review the case immediately. It is therefore important to stress that you wish for the independent review to be carried out after HMRC have to their final conclusion as part of the appeal. In the event that HMRC appoint a case officer to begin process of an independent review prior to coming to their final determination, please contact [email protected] and we can provide you with a further template letter for delaying this process until HMRC have reached their final conclusion.

Alternatively, if HMRC’s final determination is that your company is an MSC, you could request an independent review at this stage if you haven’t done so already – but you will only have 30 days to create your submission. By requesting the review at the appeal stage, you shift the time pressure to HMRC, who will have 45 days to appoint an officer to review your case.

Ultimately, it relieves pressure from you to act once the review is concluded, and signals to HMRC that you believe from the outset that you have the evidence to defend your case.

Can I still ask for an independent review after the 30 day notice period?

Yes - as long as you have appealed your determination notice within the 30 day notice period, you can ask for an independent review at any stage of the review. However, our recommendation is that you request your right to an independent review as part of your initial appeal.

Should I add information in my appeals letter specific to my case?

If you believe that you can already provide specific evidence for why your company cannot be considered a MSC for the affected tax year (e.g. you were not that with the accountancy services provider for that tax year), you can include this within your appeal letter and as reasoning for why your case should be considered independently.

It is important to note, however, that the appeals letter just merely appeals the determination at this stage and more specific information around working arrangements and the ‘involvement’ of the MSCP will be covered at either an independent review or later in HMRC’s enquires.

IPSE members can consult IPSE’s tax and legal helplines or email [email protected] should they wish to seek advice and guidance on amending their appeal letter with details of their specific case.

If HMRC vacates their review of my provider, would my company still be subject to an independent review?

No – if HMRC ultimately determines that your accountancy services provider was not an MSCP, the protective tax assessments made against you will be vacated. Essentially, there would be nothing to review.

I appealed before the deadline, but HMRC haven’t acknowledged my appeal – what should I do?

Some contractors have received letters from HMRC officially acknowledging their appeal as valid and confirming that the chargers will be stood over. However, many others have waited weeks for theirs to arrive. If you are in this position, do not panic – reporting suggests that as many as 2,000 contractors have so far been caught up in this activity. It is likely that your acknowledgement is part of a backlog of correspondence for HMRC to process.

If you are still waiting for an acknowledgement after multiple weeks and are concerned that your appeal was not received by HMRC, or you have received further correspondence from HMRC indicating that your appeal was not lodged, please contact [email protected] for support.

If you haven’t yet submitted your appeal, consider asking your tax adviser, legal counsel or IPSE’s policy team if you can copy them into your email and ask them to alert you if they spot any issues with your submission. If mailing by post, using a recorded delivery can provide reassurance against the risk of an appeal being lost in the post.

 

Does interest apply to my determined tax bill even after I’ve appealed?

Yes – unfortunately interest will be applied to the determination of unpaid employment income tax and National Insurance provided on your Regulation 80 notice of determination letter, even after appealing.

You can find the current interest rates that HMRC would apply here.

The only way to mitigate the interest payments would be to pay the tax, which is not what we would advise. In the event that the final opinion from HMRC is delayed, you may be able to apply to the Interest Rate Review Unit to argue that interest should not apply.

I’ve now submitted my appeal, what evidence can I present to HMRC to prove I’m not a MSC?

If you have received acknowledgement of your appeal from HMRC, we recommend that you begin the process of collecting all correspondence with your accountancy services provider including contracts and any other evidence that may support your case. You should gather any material that can show that you had control over your company’s finances and the way it made payments and any evidence that shows deviation from the accountancy services provider and their recommended actions.

You should be looking for any evidence within correspondence, actions or in your contract with the accountancy services provider that demonstrates the following:

  • Independence from the accountancy services provider (e.g. they are not the company secretary of your company or have any other involvement and just provide financial advice)
  • Detachment from their processes (e.g. not using their portal to upload documents)
  • Divergence from their recommendations (e.g. choosing to pay yourself in an alternative way to their recommendation)

I paid Corporation Tax in the year under review – can this be used to offset my tax bill?

When it comes to considering corporation tax which has been overpaid because of assessments which become due, there is no specific “offset” mechanism.  While the case is under appeal, HMRC will not consider the matter, as potentially there might not be any need to “offset” any tax – the assessments might for example end up being vacated if the MSC legislation is not deemed to apply.

As the period in question is not a recent accounting period then in the event an appeal is lost and the liability becomes due effectively the new MSC liability applies for that period, a period you have already paid Corporation Tax on.  You can apply to HMRC at this point to ask that corporation tax already paid for that period is taken into account to reduce the newly crystallised MSC liability.

I stopped using my accountancy services provider part way through the tax year HMRC are reviewing – how does this affect my case?

Under the legislation, your company’s status as an MSC is based on its relationship with the provider – if that relationship ends, your company would no longer be considered by HMRC to be an MSC from that point onwards.

In the event that HMRC is successful in demonstrating that your accountant was an MSCP, the fact that you ended your association with them during the tax year could be relevant when it comes to calculating your final tax bill. However, HMRC could still determine that your company was an MSC up until that point, meaning that earnings generated by your company within that period would fall within scope of the legislation.

I’ve closed my company, can HMRC still come after me?

No – if you have applied for your company to be dissolved and you have had it confirmed by HMRC that your company has been officially struck off from the Companies Register, HMRC cannot come after you for unpaid employment income tax and National Insurance under the MSC legislation.

However, limited companies in the process of being dissolved can still be contacted by HMRC for unpaid employment income tax and National Insurance.

Should I change my accountancy services provider to avoid HMRC’s enquiries?

IPSE can’t give specific advice on whether you should leave or stay with your current accountancy services provider. However, we do strongly recommend that your accountancy provider has a good grasp of the MSC legislation and understands how to avoid being “involved with” your company as according to the legislation.

The current accountancy providers under investigation from HMRC stress that they have not acted in a way that differs from other accountancy providers and have passed checks from external bodies on whether they comply with the MSC legislation.

More importantly, unlike a high-street accountant, a specialist accountancy services provider can also benefit your limited company with expert knowledge and advice on your tax affairs, business law and opportunities for growth.

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