Churchill Knight & Boox clients being investigated as Managed Service Companies

[eek]

Hey all. I’ve got a quick question, again. Apologies if this has already been covered but I can’t seem to find anything on it.

My limited company consists of my self (director) and an employee/shareholder. We pay ourselves the same salary and dividend.

In one year, we made roughly 75K and we paid each other 40% each of the company turnover. This percentage includes dividends, salary and expenses.

my question is… i took out a combined 80% out of the company (20% remained as profit, carried to the following year) but this was paid across to two individuals rather than one, thus the director of the company only took out 40% to pay himself an income, and the other 40% to an employee, which is lesser than the greater amount of the company turnover. I read somewhere if the payment to said director is under 50% then the MSC ledge should not apply.

does the above apply? I am clutching at straws here!

A take it the other shareholder is your partner - I think you are clutching at straws unless they were earning money directly themselves.

[jamesbrown]

Confused by this expenses talk to be honest.

I think people are trying to determine their liability and wondering whether expenses are tax free (i.e., expenses that would not be subject to CT under an outside IR35 contract).

The answer is that they are not. The way to estimate the liability is, essentially, to find an inside IR35 calculator and to place the company turnover into that calculator.

[jamesbrown]

Hey all. I’ve got a quick question, again. Apologies if this has already been covered but I can’t seem to find anything on it.

My limited company consists of my self (director) and an employee/shareholder. We pay ourselves the same salary and dividend.

In one year, we made roughly 75K and we paid each other 40% each of the company turnover. This percentage includes dividends, salary and expenses.

my question is… i took out a combined 80% out of the company (20% remained as profit, carried to the following year) but this was paid across to two individuals rather than one, thus the director of the company only took out 40% to pay himself an income, and the other 40% to an employee, which is lesser than the greater amount of the company turnover. I read somewhere if the payment to said director is under 50% then the MSC ledge should not apply.

does the above apply? I am clutching at straws here!

Probably not. Here is the exact phrasing of 61B(1)(b) (ITEPA Part 2, Chapter 9), which deals with this:

payments are made (directly or indirectly) to the individual (or associates of the individual) of an amount equal to the greater part or all of the consideration for the provision of the services,

My emphasis.

The meaning of associate is defined in 61I:

61I Meaning of “associate”

(1)Subsections (2) to (4) apply for the purposes of this Chapter.

(2)“Associate”, in relation to an individual, means—

(a)a member of the individual's family or household,

(b)a relative of the individual,

(c)a partner of the individual, or

(d)the trustee of any settlement in relation to which the individual, or a relative of the individual or member of the individual's family (living or dead), is or was a settlor.

(3)“Associate”, in relation to a company, means a person connected with the company.

(4)“Associate”, in relation to a partnership, means any associate of a member of the partnership.

(5)If—

(a)a managed service company (“the MSC”) is a partnership, and

(b)a person is an associate of another person by virtue only of being a member of the partnership,

the person is to be treated, for the purposes of this Chapter as it applies in relation to the MSC, as if the person were not an associate of that other person.

(6)In subsection (2), “relative” means ancestor, lineal descendant, brother or sister.

(7)For the purposes of subsection (2), two people living together as if they were a married couple or civil partners are treated as if they were married to, or civil partners of, each other.

[jimmyoyang]

A take it the other shareholder is your partner - I think you are clutching at straws unless they were earning money directly themselves.

Just saw your other post. That crossed that one out then! Can’t hate a trier!

my next angle would be… it is a company debt as it stands, so the 75K will have paye and NICs associated to it now. But… if the company cannot pay the debt, the transfer of debt will be transitioned to the next on the group… me, and my partner. Will the PAYE and NICs be split across two people? Rather than one? Reason I ask, is one individual paying 32.5K taxes will be under certain thresholds compared to 75K.

One would think / assume that since two parties are involved and the company cannot pay the debt, it’ll be passed to them… but it won’t be for 75K on each of them. Just trying to see the best way to “slice the cake” or however you slice it, it’s the same outcome.

[Chevalier]

Just saw your other post. That crossed that one out then! Can’t hate a trier!

my next angle would be… it is a company debt as it stands, so the 75K will have paye and NICs associated to it now. But… if the company cannot pay the debt, the transfer of debt will be transitioned to the next on the group… me, and my partner. Will the PAYE and NICs be split across two people? Rather than one? Reason I ask, is one individual paying 32.5K taxes will be under certain thresholds compared to 75K.

One would think / assume that since two parties are involved and the company cannot pay the debt, it’ll be passed to them… but it won’t be for 75K on each of them. Just trying to see the best way to “slice the cake” or however you slice it, it’s the same outcome.

In a word -> no!

Not unless they too were working.

[jimmyoyang]

In a word -> no!

Not unless they too were working.

The reality was she was, she wasn’t a disguised “secretary” per se. She dealt with new business and client management. There are and is evidence showing that in correspondence etc.

I guess my point is… if I had a bakery with three employees who happened to all be family members, and they were all paid a small salary and high dividends. But, were then accused to be an MSC, then why would only one person receive the “bill”? Why would this not be spread across all individuals who actually worked there? Since this is a PAYE determination… would not all of the workers need to pay NICs and PAYE too? Their NI numbers to record payments to build credit etc.

[AndrewJames]

As an ex-Boox client caught up in the MSCP/MSC.

What is the correct approach or strategy for this? Other than just appeal. Has anyone sought specialist legal advice from an expert tax law firm? Has anyone had any successful communication with local MP's? When you call around for guidance the advice is just to appeal and nobody seems to know what to do next. For me, it has now become extremely distressing considering the sums of monies HMRC want to recover from me. I am deeply worried about how this sum could be repaid and that I could lose all assets and be out on the street or even worse.

Any help appreciated

[jamesbrown]

Just saw your other post. That crossed that one out then! Can’t hate a trier!

my next angle would be… it is a company debt as it stands, so the 75K will have paye and NICs associated to it now. But… if the company cannot pay the debt, the transfer of debt will be transitioned to the next on the group… me, and my partner. Will the PAYE and NICs be split across two people? Rather than one? Reason I ask, is one individual paying 32.5K taxes will be under certain thresholds compared to 75K.

One would think / assume that since two parties are involved and the company cannot pay the debt, it’ll be passed to them… but it won’t be for 75K on each of them. Just trying to see the best way to “slice the cake” or however you slice it, it’s the same outcome.

The answers to your questions are mostly in the legislation and elaborated upon in the Employment Status Manual. Your questions are primarily about how the deemed payment is operated. See here, for example:

https://www.gov.uk/hmrc-internal-man...manual/esm3535

Essentially, take the company turnover and put it through an inside IR35 calculator. It's really about as straightforward as that (at least, approximately). The position, afterall, is that you were an employee of the end client for tax purposes, so none of the tax-efficient downstream options you actually took were really available to you because the income should've been subject to full PAYE/ErNI/EeNI first. In reality, there was no money to pay your partner or whomever pre-tax, it should've been treated as your earnings from employment first (at least, that's what it means to be an MSC, putting aside any arguments about being in business or fairness or whatever).

[jimmyoyang]

The answers to your questions are mostly in the legislation and elaborated upon in the Employment Status Manual. Your questions are primarily about how the deemed payment is operated. See here, for example:

https://www.gov.uk/hmrc-internal-man...manual/esm3535

Essentially, take the company turnover and put it through an inside IR35 calculator. It's really about as straightforward as that (at least, approximately). The position, afterall, is that you were an employee of the end client for tax purposes, so none of the tax-efficient downstream options you actually took were really available to you because the income should've been subject to full PAYE/ErNI/EeNI first. In reality, there was no money to pay your partner or whomever pre-tax, it should've been treated as your earnings from employment first (at least, that's what it means to be an MSC, putting aside any arguments about being in business or fairness or whatever).

Thanks mate, much appreciated on the patience.

when it says “end client” is that the company whom paid the invoice? The one that got billed?

if so, during 17/18 year I had invoiced / worked for ten different companies rather than just one. So it’ll have been impossible for me to have been an employee for any one of them as I work on a project to project basis.

Or is the end client actually my limited company? Or in this instance, the MSCP (CK or Boox). If the latter, then I can prove no income came through them but direct to business account. If it’s the former, then really how do you argue that? Majority of the companies I worked with only engaged with limited companies rather than sole traders/umbrellas so I would have been f&cked either way then.

[jimmyoyang]

Another question to the wider community.

As I am coming to realisation that this isn’t going to end well. I am trying to workout the worst case scenario.

if we are all guilty and liable for excess sums to be paid back for 17/18, 18/19 and 19/20 then what naturally happens for 20/21 and 21/22. I had boox complete my year end for those last two years does that mean I’ll also be liable for outstanding costs for those years not mentioned in the HMRC letter? Will those be next, if successful?

and then, would it makes sense to move to a high street accountant… who let’s be honest, will be instructed to enter a tax efficient salary with dividends on top (literally what most of us did with said accountants). Or… as our LTD company now deemed an MSC then all (following tax years) future earnings for that limited company will be sought after for unpaid taxes?

my issue is where does it end? How do we proactively end the chase game? I worry that I am essentially digging my own grave by still relying on my currently exposed limited company as the main source of income.

If becoming a permie isn’t an option… then does it make sense to just open another limited company? And put the old one to bed (as it feels like the harder we work, the more money we pour into it, the more we are getting penalised. And with my partner not allowed to be classed as an employee… do I tell them to leave and find another job? Get another source of income…) or are we as directors, tainted and will be investigated in other dealings? Like a new limited company?