Advisers range from supportive to troubled about HMRC ‘reiterating’ nine tests that 1,000 IT contractors so far not passing is costing them £57,000. Each.
HMRC has made Managed Service Company legislation the focus of its latest ‘spotlight,’ in a move that may unnerve contractors.
Readers of Spotlight 67 are invited to “find out about managed service companies,” and MSCPs including their role and identifiers.
Qdos yesterday said it welcomes the HMRC update, mainly as the 2007 framework can cost contractors many thousands of pounds.
‘MSC liability from HMRC equates to up to 40% of your contractor earnings to date’
In fact, over 1,000 contract workers assisted by the firm are under MSC investigation, with an average tax liability (each) of £57,000.
As HMRC can demand “up to 40%” of a contractor’s earnings under MSC rules, the Revenue is “right” to issue the “guidance,” Qdos said.
But it’s not ‘guidance’ — not technically, recruitment lawyer Adrian Marlowe pointed out to ITContracting.com.
‘Guidance’
If it was “guidance”, then HMRC’s Employment Status Manual would have been updated but it hasn’t been, clarified Mr Marlowe.
And even if Spotlight 67 did constitute HMRC guidance, added Mr Marlowe, of Lawspeed, it is the legislation that ultimately counts.
“Rather than being any new guidance, Spotlight 67 appears simply to be a reiteration of HMRC’s previous position, giving some examples.
“It is the law that is relevant rather than guidance,” he says. “And the law has been consistent for many years.”
‘Spotlight 67 is potentially HMRC’s attempt to head off MSC rule breaches by umbrellas’
The lawyer speculated that Spotlight 67 may have come about due to umbrella company regulation from April 6th 2026.
The regulation will make recruitment agencies that supply workers to umbrella companies liable for the workers’ PAYE.
Chair of the Association of Recruitment Consultancies (as well as Lawpseed’s CEO), Mr Marlowe says: “This Spotlight on MSCs may be an attempt by HMRC to head off potential breaches of the legislation, as umbrella companies look to assess whether there are effective models that could work once the proposed new legislation in April 2026 comes into play.”
‘Like buses’
Declining to be named, an employment tax expert sounded sympathetic to contractors being embroiled in an on-off legislative war.
The expert said: “It seems HMRC announcements [relevant to them] are like buses; sometimes there’s none, but then they all come at once.”
Spotlight 67 comes too late for contractors already under an MSC probe, however, such as PSCs who engaged Boox or Churchill Knight.
“Their perception was, and remains, that they’d engaged a genuine accountant to manage their company accounting processes,” says Carolyn Walsh, a former tax inspector who is assisting contractors who used the two companies.
‘An HMRC example of a genuine accountant should be included in Spotlight 67’
Walsh continued in a statement to ITContracting.com: “Spotlight 67 alerts readers to problematic providers, giving people a chance to exit the scheme…before more damage is done.
“But HMRC should have provided an example of someone using a genuine accountant.
“Because everyone accused of being an MSC who I help can’t see the difference between their accountant and one that [HMRC says] isn’t a problem.”
‘Provision of dedicated bookkeeping software’
In Spotlight 67, HMRC says using traditional bespoke tax advisory or accountancy services, like the “provision of dedicated bookkeeping software,” isn’t caught by the MSC legislation.
HMRC adds in the update that to be deemed an MSC, four distinct conditions must be met.
The fourth condition is that a Managed Service Company Provider (MSCP) must be “involved” with the MSC — and involvement is determined by an additional five tests.
That means there are a total of nine separate conditions taxpayers must assess themselves against to gauge their potential exposure to the MSC legislation.
‘Accounting services’
Potentially helpfully, Spotlight 67 defines MSCPs as businesses that, although generally offering “accounting services,” are “in the business of promoting or facilitating the use of” limited companies/personal service companies, among other structures.
“This [promoting or facilitating] is usually done by promising the individuals an increase in take home [sic] pay if they use this model through their service.”
And so begins a lot of wording from HMRC in Spotlight 67 which David Kirk, an employment tax specialist, finds extremely troubling.
It is wording that the founder of David Kirk & Co says he will highlight next week in an article exclusively for ITContracting.com.
‘Wake-up’
Mr Kirk, who represents contractors under MSC investigation, said last night: “So there we have it. If you have your own personal service company and are taking out of it a low salary and high dividend, HMRC thinks that you are working through a managed service company.
“And [that you] ought to be paying employment taxes, which are higher, on everything that you take out of it.
“Well, perhaps [HMRC is] not quite [saying that]. But Spotlight 67 does come pretty close to saying this, and both contractors and their accountants need to wake up and take action.”
‘Contractors with concerns’
Boss at Oblako Ltd, Ms Walsh used similar wording.
“I hope that this spotlight on MSCs from the Revenue wakes people up, ” she said, adding:
“Impartial guidance from a tax expert who has a track record in this area but no association with an MSC provider is what contractors with concerns should seek out.
“As to any Spotlight 67 readers fearing their operation may be an MSCP, what’s clear, even indisputable is that HMRC isn’t letting you off the hook.”
Recommended Contractor Accountants
- SG Accounting - Join SG and get first 3 months @ £54.50pm
- Clever Accounts - IR35 FLEX. Take on any contract you're offered
- Aardvark Accounting - Complete service just £76/month
- Integro Accounting - 6 months fixed fee accountancy service half price!
Open a Which? Recommended ii SIPP - pay no account fee for your first 6 months
