Churchill Knight & Boox clients being investigated as Managed Service Companies

[Guy Incognito]

? How would that work, the of 30 days is from the issued date isn't it? Are you saying you have 30 days from HMRC's deadline of being able to issue the determination? I'm sure you only have 30 days from the issue date.

I think I meant only chase HMRC once they have missed the deadline of April 5th.

If you think they just sent it to the wrong address I guess that would be a bad strategy.

[GregRickshaw]

Thanks again for the info.

This is all a lot to take in! I have been going through this thread that I stumbled across today, and had seen some posts about QDOS, so they were next on my list. I think it's probably my best option given the timescales, especially if Boox are taking around five days meaningfully respond.

Out of interest, have QDOS quoted you a timescale for this work?

Which accountant were you with, it seems Boox but can't see where you confirm this. The reason I ask this as CK have a very good appeal template and conditional claim templates, they also have a great help portal.

[bluetomato]

Which accountant were you with, it seems Boox but can't see where you confirm this. The reason I ask this as CK have a very good appeal template and conditional claim templates, they also have a great help portal.

Sadly, Boox - I stopped using them over three years ago - the email address I had been trying to contact (taken from their website) bounced everything but it seems that they've now updated this also after dochkaian pointed out to me the correct address.

I've yet to see what their template looks like, but I have also fired an email off to QDOS this morning to get them onboard. It looks like I should have received a notice back in April as it seems to cover year 17/18, but this is the first I've heard about all of this. Without any info on the period it's extremely difficult to work out how they've calculated it, but the amount seems to almost exactly align to the total income received for the whole time I was with Boox - from Jul 2017 to Aug 2019. But again, totally lacking details - just seems the closest figure we can determine so far. If it's not this, then I have absolutely no idea how they think the company earned that much in just that year, where it also only traded for half of it!

[GregRickshaw]

Sadly, Boox - I stopped using them over three years ago - the email address I had been trying to contact (taken from their website) bounced everything but it seems that they've now updated this also after dochkaian pointed out to me the correct address.

I've yet to see what their template looks like, but I have also fired an email off to QDOS this morning to get them onboard. It looks like I should have received a notice back in April as it seems to cover year 17/18, but this is the first I've heard about all of this. Without any info on the period it's extremely difficult to work out how they've calculated it, but the amount seems to almost exactly align to the total income received for the whole time I was with Boox - from Jul 2017 to Aug 2019. But again, totally lacking details - just seems the closest figure we can determine so far. If it's not this, then I have absolutely no idea how they think the company earned that much in just that year, where it also only traded for half of it!

From the really good replies on this post (regarding potential liability), it's very clear HMRC have done a finger in the air and come up with a figure, no thought or investigation into your actual company accounts have gone on.

We know why they did this to avoid missing the 17/18 deadline for getting the determinations out there. Even after Tribunal there will be a ton of haggling going on over figures and liabilities and this is where you'll get your chance to a) prove you weren't an MSC and b) show exactly what you earned/took from the company etc.,

The determination letters were fairly clear too, if there was no appeal the figures were accepted and must be paid. From what we know so far, they (HMRC) have not come banging on anyone's door. Let's face it suits them to slow this down to glacial pace. I hope those of you who have been let down by the distribution of the letters will be able to argue something.

[jofo]

Well I have dug some more into the question about the basis on which to calculate a more accurate "potential liability" figure today.

I am now 99% certain that the liability under the MSC legislation is based on "payments from the company to the worker" rather than the "payments from clients to the company" / the "revenue of the company".

If you compare the "deemed employment payment" calculations within Chapter 8 and 10 (IR35 Legislation) against Chapter 9 (MSC Legislation), it becomes even more obvious with the omissions of steps such as the deduction of company pension contributions etc from the MSC DEP calc.

I also went back a re-read the Reg 80 determination letter that HMRC sent. It is also states clearly within that too.

As <company name> is a Managed Service Company, all payments made from the company to <director name> are treated as employment income on which PAYE should be operated with the appropriate Income Tax and National Insurance deductions being made.

I have also looked up the legislation around re-adjustment of profits / corporation tax, as that was the final piece of the puzzle of the calculation that I was missing.

Managed service companies

141 Deduction for deemed employment payments

(1) This section applies for the purpose of calculating the profits of a trade carried on by a managed service company (the “MSC”) which is treated as making a deemed employment payment in connection with the trade.

(2) A deduction is allowed for—

(a) the amount of the deemed employment payment, and

(b) the amount of any employer's national insurance contributions paid by the MSC in respect of it.

(3) The deduction is allowed for the period of account in which the deemed employment payment is treated as made.

(4) If the MSC is a firm, the amount of the deduction allowed under subsection (2) is limited to the amount that reduces the profits of the firm of the period of account to nil.

(5) No deduction in respect of—

(a) the deemed employment payment, or

(b) any employer's national insurance contributions paid by the MSC in respect of it,

may be made except in accordance with this section.

(6) In this section the following expressions have the same meanings as in Chapter 9 of Part 2 of ITEPA 2003—

“deemed employment payment” (see section 61D(2) of that Act),

“employer's national insurance contributions” (see section 61J(1) of that Act),

“managed service company” (see section 61B of that Act).

So it looks like we can adjust the profits by deducting both the deemed employment payment and employer's NI, and get a refund on that portion of the corporation tax (if HMRC accepts our CT conditional claims).

I think I now have a pretty good understanding of how to work out a much more accurate liability figure. So I may have a go at writing up how I have gone about it for others to look at.
The resulting figures for me are significantly different than the wild demands we've seen from HMRC.

To be honest, I could have gone straight to an "expert" to work it out for me but I feel that working through the whole process has put me in a better, more educated position. So at least when / if that time comes around, I can have a proper conversation and confident in challenge HMRC. I would say it certainly has reduced my stress levels from "i am going to lose the house and everything" to "oh, i should be able to meet that out of my retained profits".

[jamesbrown]

I think I now have a pretty good understanding of how to work out a much more accurate liability figure. So I may have a go at writing up how I have gone about it for others to look at.

I think that would be very helpful, given that you've spent the time looking into this. I agree with what you've said, it does seem pretty clear.

[GregRickshaw]

I'm sure many would benefit from your calculations. Thank you for all your efforts.

[Guy Incognito]

David Kirk certainly agrees that it is the payments made that matter and not the amount invoiced.

[DealorNoDeal]

David Kirk certainly agrees that it is the payments made that matter and not the amount invoiced.

Which goes back to what I was saying earlier. The MSC legislation was targeted specifically at a type of "avoidance", involving composite companies, which became very popular not long after IR35 came in. HMRC only required the legislation to render contractors liable for the income they actually received because this would have been all the monies invoiced from the agencies (less the composite company fees).

[eek]

Which goes back to what I was saying earlier. The MSC legislation was targeted specifically at a type of "avoidance", involving composite companies, which became very popular not long after IR35 came in. HMRC only required the legislation to render contractors liable for the income they actually received because this would have been all the monies invoiced from the agencies (less the composite company fees).

+1 - the whole purpose of the legislation is to remove the MSC/limited company from the equation and treat all the money received as personal income subject to PAYE.