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Wednesday, February 21, 2024
    HomeMoneyThe brand new tax crackdown that’s left freelancers with £250,000 bills

    The brand new tax crackdown that’s left freelancers with £250,000 bills

    Seb Maley, chief executive of Qdos, said that if HMRC wins in court and applies the laws more broadly, “a whole bunch of 1000’s of innocent contractors may very well be left with devastating tax bills”.

    He continued: “HMRC is placing the blame on contractors who, in point of fact, have simply listened to the recommendation of third-parties – in some ways, it bears similarities to the loan charge.

    “Nonetheless, the motivation to work through what HMRC suspects to be a managed service company wasn’t tax-related. Contractors had simply chosen an accountant with a specialism of their business profile – but their tax position could be the identical had they used any high street accountancy firm.

    “Added to this, the sheer variety of contractors this ambiguous and ill-considered laws could impact could be greater than the loan charge.” 

    Mr Kirk has put in counterclaims for the corporation tax paid by his clients, all of whom have individually appealed to HMRC. 

    “With three likely rounds of appeals the contractors could be waiting until 2028 before a final judgement is reached,” he said, “and that’s on the test cases. Even then, they’ll only stick where their facts are on all fours with everyone else’s.” 

    Mr Kirk said: “I’ve been a Chartered Accountant for 44 years and I can’t tell them other than a compliant accountancy firm. How on earth is an outsider imagined to find a way to do that?”

    Mr Kirk added HMRC were “shooting themselves within the foot” by going after accountants for using a web based portal when the tax office is itself attempting to encourage more people to sort out their tax affairs online through its Making Tax Digital project.

    ‘A living nightmare’

    In an announcement published on Churchill Knight’s website in 2022, Tom Edwards, its director, said: “We consider that HMRC has entirely misinterpreted the MSC laws, and we strongly deny being involved with our accountancy clients as a Managed Service Company Provider. Throughout this investigation, we’re offering across the clock support to our impacted clients and have built a web based portal to assist them throughout the appeals process.

    “Everyone at Churchill Knight is shocked about this investigation, but I don’t feel prefer it’s an attack on us. It’s an attack on the industry and on contractors who operate their very own limited company.

    Boox is now not trading. A press release on its website reads: “Unfortunately the continuing HMRC investigation has had a hugely negative impact on our business which has led to us not with the ability to sustain or operate our accountancy practice.” 

    The firm added that it continues to challenge HMRC.

    Andy Chamberlain, policy director at IPSE, said “the investigations had been a living nightmare for those affected”.

    “These rules were never designed to forestall freelancers from working with accountants, something which the Government was at pains to indicate when it introduced them,” he added.

    “Ministers must now consider if the MSC rules are being applied appropriately, or whether HMRC is twisting the principles in a cynical tax grab against a gaggle of small business owners who will struggle to resource a years-long legal battle.”

    If an organization is found to be in breach of the laws, then all of its clients can pay employment tax by default.

    A spokesman for HMRC said: “We all know there’s an actual person behind every bill and we recognise coping with large tax bills comes with significant pressure. Our message to anyone nervous a couple of tax liability is to contact us as soon as possible to speak about options.

    “The Managed Service Company rules exist to assist ensure individuals who work like employees pay tax like employees.”

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