Hunt isn’t the answer to better MSC legislation application; HMRC is

For the sheer amount of angst it causes, a lot of it unjustifiably and unnecessarily, it’s hard not to support a call for the pernicious MSC legislation to be amended at Autumn Statement 2023 by chancellor Jeremy Hunt, writes former tax inspector Carolyn Walsh, director at Oblako Ltd.

But will a fiscally under pressure Mr Hunt, who played it mind-numbingly safe this week at the Tory party conference by talking about finding savings in Whitehall, actually amend the 2007 legislation, at this fractious time in the government’s tenure?  

We should try the taxman instead

Maybe a direct approach to HMRC would gain quicker results for some taxpayers accused under the Managed Service Companies legislation, and especially in my mind is those taxpayers ensnared without clear justification.  

Even if the call to him was listened to, the Treasury boss acting now would not alleviate the concerns of genuine accountants who are understandably fearful of coming within MSC legislation’s scope. Even more understandably, they fear taking on contractor clients who approach them with a pre-existing MSC enquiry.  

The exemption for accountants

To reassure accountants, I’d point to the MSC legislation specifically precluding tax agents who just go about their business and happen to manage contractor company set-ups, offer small business advice and provide accounting services.  

Granted, a proven MSC provider will have done everything to make it appear that it operates as an ordinary accountancy firm. But my sense is -- and the problem with appealing to Hunt is -- the government believes the MSC legislation is sufficiently robust as to determine between an accountancy firm and an MSC provider. As I say above, even if our sector could convince the government to intervene with a legislative fix, sadly it would still be too late for those in the contractor sector who are currently involved with HMRC over the MSC legislation.  

Sympathies, supervision, smoke and mirrors

Here’s another area where taxpayers have my sympathy. How are they meant to know that an ‘FRC’ (Financial Reporting Council) logo on a company’s website is NOT the same as a qualified tax agent, under the supervision of a professional accountancy body, who is authorised to display, say, the logo of the ICAEW (Institute of Chartered Accountants in England and Wales), or the ACCA (The Association of Chartered Certified Accountants)?  

You might think that logo-related smoke-and-mirrors can be legislated against to stop individuals finding themselves in the shadows of MSCPs. But unfortunately, it’s just not possible. We know this because we already see things working out very nicely for logo misusers in the umbrella company sector, where an array of spoof logos regularly hoodwink droves of workers into thinking they’re dealing with a properly audited company.  

The pause on off-payroll probes bodes well for an MSC concession

Instead what’s needed is a quick, practical solution to help the many thousands of taxpayers who are in dire need of help -- right now -- because of MSC-related angst. So I think HMRC is a better bet to assist, and with it offering on the IR35 front to pause compliance probes so the offset mechanism from April 6th 2024 can be factored in now, the department does like to show it can be flexible.   

Elsewhere, though, the taxman could do better. In a recent and well-publicised MSC case, HMRC is sticking by the High Court’s decision last year that the company was an MSCP, but it’s my understanding that not all clients were agency workers (as HMRC suspects), and furthermore, not all clients used the ‘standardised product’ or portal that was offered to them. The contractors used neither of these because the product nor portal worked for them and for various well-founded reasons. And these reasons, I would argue, actually prove none of the MSC legislation’s five prescribed activities to determine ‘involvement,’ therefore there was no ‘involvement’ within the definition of the legislation, meaning the MSC legislation simply cannot apply.  

Fast-track review facility for MSC cases is what  HMRC needs to offer

A change in process at HMRC’s end would save a lot of angst and time and money (for both taxpayers and tax authority), and the ideal change would be to ‘fast-track’ cases for review where there is clear doubt (not just expressed doubt) about the validity of HMRC’s opinion on ‘involvement’. (Remember, ‘involvement’ is the key -- without it, the legislation cannot apply).  

Why do I think this ‘fast-track’ facility for MSC cases on shaky ground is a viable option? HMRC has told me -- in relation to an ongoing MSC case:  

 “There appears to be an immediate expectation that all clients operated this model [the standardised product] as standard.”   

Well, my understanding is the opposite, that -- no, all contractors didn’t operate this model. And you know what? Look at the wording, as HMRC doesn’t even sound that sure about it either when it uses words like “appears” and “expectation.”   

Help me remove the Sword of Damocles...

If tax agents and us advisers can secure a quick concession from HMRC, we could push for MSC cases which perhaps pass a mutually agreed test to not have to wait for the appeals to be heard, and in doing so would prevent the Sword of Damocles hanging over them. And from what I’m seeing right now, that sword actively impedes their future prospects and their businesses.   

Do you want to join me in trying to secure this concession-cum-facility from HMRC? I am happy to approach HMRC, myself, to work up a solution which will save at least some contractors who are currently suffering from the long, arduous, life-altering appeal processes in relation to charges against them under the MSC legislation. But there’s always strength in numbers, So reach out to me so we can reach out together to HMRC, not the chancellor, if you believe in trying to win a small battle, while the war rages on.

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Written by Carolyn Walsh

With over twenty years’ experience in the sector, Carolyn assists freelancers, contractors, agency and umbrella company workers, interpreting tax legislation and guidance with a no-nonsense approach.
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