Churchill Knight & Boox clients being investigated as Managed Service Companies

[Hareforthebear]

Ignore the complications of apportionment and just imagine you had a turnover of £100k and you paid £20k in corporation tax.

They are basically saying you need to pay PAYE,NI etc. on the £80k (NET Trading profit).

It would be FAR BETTER to reclaim the £20k back and pay the PAYE, NI etc. on the £100k.

They are doing us no favours by "including" it in the calculation.

This is what I don’t understand. If they’re saying that £80k should be a salary and therefore taxed as such, then this is an expense and would have a huge impact on the corp tax paid wouldn’t it?

So if they are correct and the payments have been treated incorrectly by us, then we should be able to have the accounts redone and offset any monies owing against what was paid for self assessment etc. As the same money can’t be subject to corp tax, paye, and self-assessment surely.

Or is there supposed to be a ‘it’s too difficult to work out’ or, punitive element to this? Cos it shouldn’t really be that hard to correct (assuming HMRC is correct and MSC Legislation applies).

[jamesbrown]

This is what I don’t understand. If they’re saying that £80k should be a salary and therefore taxed as such, then this is an expense and would have a huge impact on the corp tax paid wouldn’t it?

So if they are correct and the payments have been treated incorrectly by us, then we should be able to have the accounts redone and offset any monies owing against what was paid for self assessment etc. As the same money can’t be subject to corp tax, paye, and self-assessment surely.

Or is there supposed to be a ‘it’s too difficult to work out’ or, punitive element to this? Cos it shouldn’t really be that hard to correct (assuming HMRC is correct and MSC Legislation applies).

There is nothing illogical about what you're saying, but it doesn't work like that in practice. When accounting errors are found, there are time limits to request refunds. In this case, HMRC will play hardball on those time limits. This sort of makes sense because you cannot both reject that an error has been made and also pre-emptively apply for a refund if an error is to be later proven. Again, though, it is HMRC playing hardball with time limits. In reality, a tribunal judge has the power to decide if the parties cannot agree on quantum, but you will need to wait and deal with the uncertainty, I'm afraid. Most likely, in the end, the CT will be offset against any outstanding taxes (and the dividend taxes for sure), but there are no guarantees.

[Guy Incognito]

Also the calculation is going to be very difficult and almost certainly quicker and easier to do if you take whole three years as the apportionment methodology will be less inaccurate. From their perspective why get into the numbers before the battle is fought?

Obviously from ours, not really knowing the liability adds to uncertainty and fear (and so also good for them from a meta perspective).

[rdw1970]

Ignore the complications of apportionment and just imagine you had a turnover of £100k and you paid £20k in corporation tax.

They are basically saying you need to pay PAYE,NI etc. on the £80k (NET Trading profit).

It would be FAR BETTER to reclaim the £20k back and pay the PAYE, NI etc. on the £100k.

They are doing us no favours by "including" it in the calculation.

Correct, the determinations would be far lower if PAYE and NI were calculated on turnover and then CT then refunded after.
Are we starting to see why these calculations were not provided in the first instance and they were only sent out if requested?
I can't see how Hector can use the time limit argument for CT when they have already used this in their own calculations.

[isaaaaaaaaccc]

I've had a number of advisors recently say there is likely no change that HMRC will be able to apply double taxation to these circumstances if it really came to it. I'm not convinced but optimistic. Plan for the worst hope for the best.

[eek]

I've had a number of advisors recently say there is likely no change that HMRC will be able to apply double taxation to these circumstances if it really came to it. I'm not convinced but optimistic. Plan for the worst hope for the best.

I suspect HMRC would try but back down when suitable pressure (from say your MP) was applied

[GregRickshaw]

I've had a number of advisors recently say there is likely no change that HMRC will be able to apply double taxation to these circumstances if it really came to it. I'm not convinced but optimistic. Plan for the worst hope for the best.

Advisors say a lot of things.

[JohnP1977]

Correct, the determinations would be far lower if PAYE and NI were calculated on turnover and then CT then refunded after.
Are we starting to see why these calculations were not provided in the first instance and they were only sent out if requested?
I can't see how Hector can use the time limit argument for CT when they have already used this in their own calculations.

Looking at how the instructions for calculating the deemed payment are worded in the HMRC internal guidance. The deemed payment is counted as anything you receive from the MSC (not the fee income of your MSC) for the provision of services that isn't either earnings or allowable expenses under PAYE rules.

SO

They will argue that corporation tax isn't part of this calculation and therefore you can't claim it back.


Very interested to talk to anyone who has been looking into what their liability is likely to be and hear their thoughts on how best to calculate this. My read on the situation is actually a much worse case for the contractor than most advisors seem to be suggesting so I'd like to se what others think?

[GregRickshaw]

They will argue that corporation tax isn't part of this calculation and therefore you can't claim it back.

No one would 'put it past' HMRC to argue anything and we are heading into a double taxation situation which even HMRC may baulk at and the backlash it would cause.

HMRC will do exactly whatever they want and they will get away with it. I am focusing on fighting I was not an MSC as much as I possibly can and in everyway via multiple channels.

However, ultimately I also have at the front of my mind is how good 'long' a TTP I can hope to get.

[rdw1970]

Looking at how the instructions for calculating the deemed payment are worded in the HMRC internal guidance. The deemed payment is counted as anything you receive from the MSC (not the fee income of your MSC) for the provision of services that isn't either earnings or allowable expenses under PAYE rules.

SO

They will argue that corporation tax isn't part of this calculation and therefore you can't claim it back.


Very interested to talk to anyone who has been looking into what their liability is likely to be and hear their thoughts on how best to calculate this. My read on the situation is actually a much worse case for the contractor than most advisors seem to be suggesting so I'd like to se what others think?

I read that guide too and in step 2 they have taken Corp Tax from my apportioned turnover before calculating NI and PAYE. I have asked them to clarify this anyway.