IR35 reviews and the MSC rules: ‘Standardised Product’ versus ‘Tailored Advice.’ What are the risks?

To gauge some of the risks involved in the contractor sector today, affecting those using two tax firms who have been deemed MSCs by HMRC and potentially affecting those limited company contractors (and accountancy service providers) who could be next in the taxman’s MSC crosshairs, we need to take a trip down memory lane, writes Kate Cottrell of status advisory Bauer & Cottrell.

A little bit of history

In April 2007, the introduction of the MSC rules caused panic among many accountancy service providers. At the time, some providers included 'tax losses insurances' within their fees, offering a ‘no risk’ option to all in the contractual chain.

Many providers were also undertaking IR35 reviews, although many of these were nothing more than a provider’s salesperson saying ‘outside IR35’ without any proper consideration of contracts and working practices. Such actions could mean the MSC rules apply. Things had to change, as the risk to the providers was too great. Indeed, generally most thought that any HMRC enquiry was enough to put the provider out of business overnight!

The accountancy exemption – saving all from the MSC rules?

'Phew' many said! As long as an accountant was professionally qualified, or working towards a qualification and regulated by an accountancy institute, then no fear, thanks to then-new accountancy exemption. They then believed they could, without falling fowl of the MSC rules, do anything for the contractor.

Take a look at HMRC’s guidance in the ESM:

A number of Service Providers are telling their clients that they (the Service Providers) are not MSC Providers; rather that they are accountants. They are therefore telling clients that their companies are not caught by the legislation.

Whether or not the tax rules apply will depend on the precise relationship between the MSC Provider and the client company. The fact that a Service Provider holds a professional qualification does not itself mean that they cannot be an MSC Provider.

Well, this HMRC guidance is still current today and is relevant in the two MSC investigations we know about.

Initial reactions

Some providers were owned and run by contractors or agencies – all with great knowledge of the industry but not professionally-qualified.

Most ditched tax losses insurances (a clear MSC signpost), as part of their offering. Many without any professional accountants in their team employed some. Some providers outsourced all things IR35, and some set up separate companies to deal with this aspect.

What has happened between 2007and 2022. Did everyone go to sleep?!

HMRC clearly did nothing visible until 2018 and the Christianuyi case.

For many accountancy providers, the MSC rules became lost in time and many started to provide ‘one-stop-shop’ IR35 reviews, which ranged from a quick check (often automated) to look for a substitution clause in a contract -- to inventing their own IR35 status “tools,” seemingly oblivious to the MSC rules. 

Many seemed to rely upon the accountancy exemption, but some completely overlooked the big, currently potentially explosive issue of ‘Tailored’ versus ‘Standardised Product,' where they effectively overlooked the potential for IR35 contract reviews (notably the latter type) to amount to “influencing and control” under the MSC rules.

Today, IR35 processes and tools have now become the norm following the advent of the off-payroll rules and the development of HMRC’s CEST tool. Many accountancy service providers set up their own umbrella companies to allow contractors to seamlessly move between their own limited company and the umbrella company, depending on whether they are inside IR35 or outside IR35 for each engagement. In practice this seems fine but in theory this could also lead down the risky path of 'influencing and controlling,' under the MSC rules.

What constitutes 'Tailored Advice' for an IR35 contract review?

This is what HMRC has to say about providing IR35 advice and whether this satisfies being “involved” for the purposes of the MSC rules:

Providing advice on whether Chapter 8 ITEPA (IR35) applies to a particular engagement.

Such advice does not constitute being involved where:

  • The Service Provider has had no involvement whatsoever, directly or indirectly, in the engagement contract with any of the parties in the contractual chain; and
  • There is verifiable evidence that the Service Provider, in addition to considering the engagement contract, considers fully the actual terms and conditions under which the client is engaged; and
  • There is verifiable evidence that the Service Provider has challenged inconsistencies in information provided by any party; and
  • The Service Provider extends full co-operation to HMRC when so requested in order to determine the accuracy of the Provider’s processes.
  • Advising on a remuneration package


Providing advice to a client does not constitute being involved. But HMRC will consider very carefully whether advice given constitutes genuine tailored advice or in effect constitutes a standardised product. In determining the nature of such advice, HMRC will consider all factors including the nature of advice given to other clients.

The IR35 review/MSC issue has never been tested in the tribunals and courts at the time of writing. But any IR35 review service should include, as a minimum the following:

  1. Working practices and written contracts must be reviewed.
  2. Evidence should be kept that shows that any inconsistencies have been challenged.
  3. Evidence of the entire review process undertaken for each individual contractor should be kept.
  4. Providers should be happy to share all evidence with HMRC.  

What are the risks for contractors and what to consider?

We are dealing with largely untested MSC rules but there are certain issues that may be a problem but can be avoided.

  • Providers that offer PSCs and umbrellas -- with the ability to move easily between the two structures -- could amount to “influence and control” under the MSC rules. 
  • Providers who negotiate changes to contracts to make them “IR35 friendly,” likewise risk influencing and controlling under the MSC rules.
  • There is a risk that some providers’ IR35 processes and automated tools are biased in favour of certain IR35 outcomes (for sales purposes).
  • Beware of 'free IR35 assessments' – why are they free, or are they just a ‘loss leader’?
  • Beware some IR35 insurances, as these can pose a red flag for the MSC rules if the insurance is provided as part of an accountancy package.
  • Check that your provider has a genuine history in getting IR35 right, that all things IR35 and off-payroll are understood -- including case law precedent. Crucially, did they only become “experts” once the off-payroll rules came into force?
  • Ask your provider to explain why they do not fall under the MSC rules and keep a note of their answer.
  • Are you confident that you are not just being told what you want to hear i.e., you want to be outside IR35?
  • Whatever IR35 process or automated tool is used, you need to be sure that all appropriate issues have been considered and evaluated and are confident that the service you have received from the provider is tailored to your own circumstances.   

Are independent IR35 reviews an MSC risk-free option?

The answer is a simple ‘yes’ -- as long they are not also providing accountancy services!    

In summary...

An IR35 review carried out by a genuine independent IR35 specialist cannot fall under the MSC rules. It is a bespoke tailored service holding all the evidence potentially needed to stop an HMRC IR35 investigation in its tracks.

By using an independent IR35 service (and by all means shop around to decide which service impresses you most and is best for you), you are clearly demonstrating that you have taken reasonable care. And you are demonstrating that it is you instructing your accountancy provider how to treat your income for tax and NIC purposes, helpfully demonstrating that you are in control of this aspect and meeting the requirements of being a director of your PSC.   

Choosing independent IR35 specialists may be a small thing, but it’s one small thing that could protect you – both from the large and imposing MSC rules and an extra large tax and NIC bills many years hence!

Thursday 23rd Jun 2022
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Written by Kate Cottrell

Kate Cottrell from Bauer & Cottrell Limited - leading UK IR35 expert who has been contributing IR35 guidance, commentary and articles to ContractorUK for many years.
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