Are you involved with an MSC Provider?

MSC legislation is possibly more of a minefield than IR35 legislation because it relates to the use of a specific type of accountancy service, rather than the manner in which a worker/director provides services to clients.

This is partly because HMRC was careful to exclude genuine accountancy firms from the relevant legislation, even though many of the service provisions are exactly the same, e.g. setting up limited companies on behalf of clients, running the company payroll, filing annual company returns.

In order to determine whether a worker/director is caught by MSC legislation, he or she must somehow know whether their accountant is deemed to be an MSC Provider (MSCP). See below for a link to HMRC guidance on MSC legislation.

For the average taxpayer it is an almost insurmountable task, not helped by the fact that all MSC Providers vehemently claim that the firm is an accountancy firm and not an MSC Provider.

There are telling differences between an MSCP and an accountancy firm, for example, often an MSCP will manage the funds being paid to the worker/director’s company by an agency or client. Also, due to the high volume of limited companies being managed, the MSCP tends to force a standardised product* on the director of those companies. In short, very little choice is given with regard to the level of service that will be provided, nor is any tailored advice available.

So let's look at the basics; in the official guidance, https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm3520 HMRC states,

‘Where it is clearly a standardised product constituting the MSC Provider being involved with client companies, it (HMRC) will take the starting view that all client companies are MSCs. The onus will then be on the individual companies to demonstrate no involvement.’

What does involvement mean?

“Involved” is defined in the legislation by reference to any one of five activities relating to the ‘accountant’ and the worker/director’s company.

1. The accountant’s fee structure is directly related to the financial activity of the company
2. There is evidence of undue influence or control over the worker/director and the company, e.g. determining the terms under which the worker provides their services or is to be remunerated
3. The distribution of profits conform to a standardised product over which the worker as director has little to no control or influence
4. The accountant is able to influence or control the company’s finances or any of its activities
5. The accountant offers insurance against the tax/NIC liabilities arising under the MSC legislation, IR35, or any other provision of the Tax Acts or National Insurance legislation.

Generally, only the third and fourth activities apply, and this is particularly so with the providers and taxpayers currently caught up in the latest MSC cases. If these tests are not satisfied, then MSC legislation simply cannot apply.

For anyone who has received a letter from HMRC which mentions MSC legislation, this is solely because HMRC’s opinion is that their accountancy firm falls within the definition of MSC legislation, and as the guidance says, HMRC will take the starting view that all companies that have received an accountancy service from that firm will be an MSC.?And it's up to the taxpayer to counter that opinion using the relevant appeal process.

Why is this an issue?

MSC means a managed service company, which takes the worker/director’s company outside IR35 legislation, simply because it is not considered to be a personal service company (PSC). MSC legislation provides that the worker/director's company must treat any income generated under PAYE, it has to be said, under less favourable terms than if IR35 actually applied to the worker/director’s contracts.

To summarise....

If your accountancy firm refers to there being a live investigation which is being challenged, it may be obfuscating or muddying the waters, because when HMRC has notified all companies that they are considered to be MSCs, the investigation has lead to a high court decision that the firm is a MSC Provider, and the accountancy service provider, having been involved in the investigation will more than likely know that.

This article unavoidably provides a mountain of information which may be hard to take in at first, so I will be creating a series of informational articles on the subject of MSC legislation with a deeper explanations of the definition of 'involvement' within the MSC legislation. This is in order that anyone who is currently dealing with an MSC issue has access to advice, which is free and more importantly, independent of both HMRC and the MSC provider/accountancy firm.

However, if you urgently need tailored advice, please send an inmail or email me at cwalsh@oblakoservices.co.uk