Markel Tax Associate Director David Harmer has warned that efforts by HMRC to crack down on managed service company (MSC) compliance could cause accountancy firms to lose credibility and damage the confidence of accountants and the contractors that engage them.
The comments come after HMRC alleged that two accountancy firms offering contractor services, Churchill Knight and Boox, had broken MSC legislation. Some contractors who engaged the services of the firms received income tax bills of up to £50,000.
Harmer said: “The whole purpose of the MSC legislation was that you had a number of workers going through companies and they didn’t know how to manage and run their own company.”
“The problem in this case is that, as far as the revenue is concerned, Churchill Knight and Boox have stepped across the line from an accountancy service into controlling and managing.”
Harmer has said that freelancers and accountants are both likely to be impacted, saying it could “make contractors very nervous about accountants in general, and […] make accountants nervous about the services they provide.” Harmer went on to state that there could be “knee jerk reactions” from both accountants and contractors.
In order to tackle the issue, Harmer says that MSC providers should attempt to safeguard themselves by assessing their branding. Harmer asserts HMRC will look specifically at how MSCs present the services they offer as they look to identify potential non-compliance.
“For any accountant, I’d be saying job number one is to look at your marketing literature and how you’re selling the services. If you’re marketing yourself as ‘come to us and we’ll do everything for you’, you’re going to put yourselves quite high up on the revenue’s hit list.”
Harmer also emphasises the importance of ensuring accountants have the authority to perform services they provide. However, perhaps the most crucial thing, Harmer says, is for firms to audit the control of money and how they receive payment.
According to Harmer, the introduction of IR35 reforms saw many accountancy firms adopt models in which they became the fee payer, meaning that they received money prior to contractors and took their fees out. Essentially, this gave them control of contractor finances.
Harmer argues that this could be prevented by accountants resisting the “urge to automate” their processes and instead focusing on providing advisory services to contractors.
