Back in the depths of 2007, HMRC had somewhat lost control of contractor pay.
Many had moved to Managed Service Companies or MSCs which generally led to paying much less National Insurance and Tax, legally. Reforming this area was clearly going to be a challenge. So, they didn’t, they simply decided just to scrap the tax relief aspects and move on.
However, elements of the MSC set-up were popular. Every time changes are made, new routes to minimise tax is found, such as under IR35. Well, HMRC have now decided to go after a range of organisations for what they think is supporting their customers to operate as MSCs.
One is Boox Accountancy, and they are not impressed. The App Accounting Group which owns Boox are definitely on the offensive. They feel that HMRC has made errors in judgement leading to unfounded claims.
They have found inaccuracies between what HMRC thinks to be true and what they see as the reality. However, there seems to be quite a number of their clients affected by this and they are supporting and actively encouraging them to appeal. HMRC have somewhat of a track record with this.
They have also approached other firms with similar issues of MSC breaches including Churchill Knight. Success could mean additional tens of millions of pounds of revenue for HMRC. This will come directly from the pockets of these accountancy firms and contractors, all who will say they believe they have followed procedures set out by HMRC and already done what is required of them.
It is likely that there are more accusations to come. Not just for Boox, but for many other accountancy firms. While there is a clear definition of MSCs, there is obviously something HMRC feels is an issue.
Boox will move their appeal forward, but we are likely to see other firms affected. These could additionally lead to issues with IR35 and challenges there. Depending on the set-up, it is possible that any contractor or accountancy firm could be the next that HMRC investigates. The main consideration is to be aware that it could happen and be ready for it to come.
One thing is for sure. If you receive a letter from HMRC about this, then take action on it. This is not something to ignore – it must be dealt with. Do check the basic facts.
People have been receiving letters who do not hold an appropriate position in the company. Also, letters have been sent to dissolved companies and those who have only been incorporated quite recently.
Finally, get some advice and appeal. Disputing the claims is an important part of the process or you could be liable for a huge amount of money. The only way to succeed is to fight it. Watch this space, but there may well be a lot of unhappy contractors yet to come.
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