Churchill Knight & Boox clients being investigated as Managed Service Companies

[oleanderwand]

Essentially, the entire supply chain that was "involved with" the provision of the worker's services up to and including the worker personally (in the first instance) are joint and severally liable:

https://www.gov.uk/hmrc-internal-man...manual/esm3625

So, yeah, it's pretty comprehensive.

Whether or not one likes it, credit dues when it does, yeah it is pretty comprehensive. Sadly it also ruins people whose Ltds simply use regular accountancy services to comply with regulations. By regular I mean as in normal services that a professional accountant does, e.g. not MSCP. What a dilemma, damned if you do damned if you don’t!

Do I read that debt transfer manual correctly e.g.

a. there are exclusions i.e. professional accountancy services, business and employment agency etc as long as they are not "involved".
b. there are situations where supply chain or end-client would not be deemed liable for debt transfer as "Third person" category.
c. that debt transfer to Ltd's director or office holder is only valid if "Transfer Notices" is issued within a certain time limit.

Subsequent manual about Time Limit mentions it must be within 12 months of debt becoming due (see: https://www.gov.uk/hmrc-internal-man...manual/esm3635), otherwise "Transfer Notices" cannot be issued a.k.a off limit? Also, what or when "debt becoming due" happens?

The Time Limit manual does not mention about debt transfer if Ltd was already dissolved though, only while Ltd is trading, cease trading, or in liquidation and perhaps also in the meaning of strike off when HMRC can make closure objection. So it’s not quite clear what would happen if Ltd was already dissolved (and HMRC did not object to its closure at the time)?

[jamesbrown]

I don't see how the debt is transferred to the agency / endclient though given from there

It all comes down to "involved with". Bottom line, they are going for the MSC and its directors first, then the MSCP and its directors, then anyone else they can get away with, but it will be hanging by a shoogly peg when they arrive at the third category and I don't expect that would happen too often.

[jamesbrown]

Whether or not one likes it, credit dues when it does, yeah it is pretty comprehensive. Sadly it also ruins people whose Ltds simply use regular accountancy services to comply with regulations. By regular I mean as in normal services that a professional accountant does, e.g. not MSCP. What a dilemma, damned if you do damned if you don’t!

Do I read that debt transfer manual correctly e.g.

a. there are exclusions i.e. professional accountancy services, business and employment agency etc as long as they are not "involved".
b. there are situations where supply chain or end-client would not be deemed liable for debt transfer as "Third person" category.
c. that debt transfer to Ltd's director or office holder is only valid if "Transfer Notices" is issued within a certain time limit.

Subsequent manual about Time Limit mentions it must be within 12 months of debt becoming due (see: https://www.gov.uk/hmrc-internal-man...manual/esm3635), otherwise "Transfer Notices" cannot be issued a.k.a off limit? Also, what or when "debt becoming due" happens?

The Time Limit manual does not mention about debt transfer if Ltd was already dissolved though, only while Ltd is trading, cease trading, or in liquidation and perhaps also in the meaning of strike off when HMRC can make closure objection. So it’s not quite clear what would happen if Ltd was already dissolved (and HMRC did not object to its closure at the time)?

Dissolution isn't a bar, since it can be transferred to relevant natural persons. The exclusions are only relevant if they were not "involved with" and that is the same barrier to being an MSC anyway, so it seems moot to me (if you're in a transfer of debt situation, you're pre-stuffed), although I am not a lawyer.

[eek]

I’ve just skimread this thread. I think one critical point that has barely been mentioned, if at all, as far as I can see, is the exemption which should apply here. Namely the exemption for accountancy services provided in a professional capacity. I’d be astounded if CK’s clients don’t win on that point. Unless CK have been doing something particularly provocative, then every single contractor who uses an accountant is going to be caught, and that cannot have been the intention of Parliament.

Given that that is such an obvious exemption / get out clause HMRC clearly think it's not the excuse / fix people on here will be hoping it is.

Interesting to note that both Dave Chaplin and QDOS are trying to make money from this...

[jamesbrown]

I’ve just skimread this thread. I think one critical point that has barely been mentioned, if at all, as far as I can see, is the exemption which should apply here. Namely the exemption for accountancy services provided in a professional capacity. I’d be astounded if CK’s clients don’t win on that point. Unless CK have been doing something particularly provocative, then every single contractor who uses an accountant is going to be caught, and that cannot have been the intention of Parliament.

I think this is a very relevant point, yes; the intention of Parliament. It clearly was the intention to exclude vanilla accountancy services as that is explicitly part of the phrasing of ITEPA Ch. 9 ("A person does not fall within subsection (1)(d) merely by virtue of providing legal or accountancy services in a professional capacity.").

At the same time, some services offered by companies that are nominally providing accounting services can clearly be within scope and that would be sufficient for them to be an MSCP. In other words, it is a grey area and that is what HMRC will be probing, even if they ultimately lose w/r to CK (as I suspect they probably will, but it's also not terribly hard to speculate why they chose CK - a mixture of "solutions", presented/marketed as "solutions", bespoke portal to implement them etc. etc., but as others have noted, there isn't much value in this speculation).

[THEPUMA]

Given that that is such an obvious exemption / get out clause HMRC clearly think it's not the excuse / fix people on here will be hoping it is.

Interesting to note that both Dave Chaplin and QDOS are trying to make money from this...

HMRC are wrong and will lose in my opinion. But probably worth a punt for them. If they win, it brings in billions, if they lose, it’s a few hundred grand of legal fees.

[Lance]

HMRC are wrong and will lose in my opinion. But probably worth a punt for them. If they win, it brings in billions, if they lose, it’s a few hundred grand of legal fees.

Billions????? What makes you think that?

That's at least £2B.
There's c. 4M self-employed in the UK. So let's be generous and say that's 500k IT contractors.
Let's be generous to CK and suggest they have 10% of the market. So 50k contractors.

That means you think HMRC are after £4m from each of those contractors.....
You are out by several orders of magnitude.

[THEPUMA]

I think your maths is wrong, assuming the traditional £1bn = 1,000 x £1m.

For the record, I am assuming that HMRC will go after several of the other contractor specialists if they are successful against CK.

[Fred Bloggs]

I’ve just skimread this thread. I think one critical point that has barely been mentioned, if at all, as far as I can see, is the exemption which should apply here. Namely the exemption for accountancy services provided in a professional capacity. I’d be astounded if CK’s clients don’t win on that point. Unless CK have been doing something particularly provocative, then every single contractor who uses an accountant is going to be caught, and that cannot have been the intention of Parliament.

Absolutely correct. The exemption is there in the MSC legislation. I have said here already that if a contractor has had a vanilla book keeping arrangement with an accountant I would be astonished if they were declared an MSC.

[tenten]

I have just digested this thread and I feel for those currently ensnared by the enquiries...... and those who may be in the future (myself included). Whilst I am quite shocked at the potential impact should this go against feelancers, I am not shocked at the tactics deployed. The motives and methods are still all speculation thus far but I hope this is another tree shake that will fail and fade - fear sells (or nudges behaviour).

Having re-read the relevant HMRC employment guides, I see some possible scope in the grey areas for defining some accountancies as MSCPs. But from my own experience using a couple of providers, I struggle to see much, if any, room for HMRC to manoeuvre if they were trying to build a case that my PSC into an MSC. But if there is an opportunity for HMRC to find a hole in any one client Limited co relationship which flips all of them to MSCs, then that is a serious concern - that is completely out of your control and always was.

Regarding the suggestion that the alleged MSCPs are involved with the Ltd co under activity 3 ("influencing or controlling payments"): the employment guide says that the Ltd co directors should determine how the company distributes its profits independent of the MSCP. Profits are realised after costs, including salaries, are deducted. I would like to assume that the spirit of this clause is targetted at dividends and not the use of a baseline salary often recommended for Ltd co directors.

I know several contractors who use traditional local accountants and they have their hands held a hellavah lot more than I have ever experienced using a digital based service. It would be truly baffling if this went on to establish that because there is evidence of your Ltd co inheriting, and agreeing to, a system default setting at that start of your relationship that you were somehow influenced and illegitimate.

One other point I haven't seen mentioned: why now? As I understand it the MSC legislation was introduced in 2007. Over the last 15 years, the growth in digital accountancy solutions has been exponential - the optional extras around those solutions have been relatively stable for probably the last 5 years with IR35 advice and investigation insurance becoming more prevalent. Are we to believe they have only just noticed something is foul with this model now? One of HMRCs biggest criticisms over the loan charge was the lack of interest/action against schemes for years (decades I think) - they knew it was going on but essentially ignored it until it became a sh1tshow. Are they making the same mistake again?