Churchill Knight & Boox clients being investigated as Managed Service Companies

[eek]

So we agree that its the clients payment as income, which means the proportion paid can be much higher than 50% (depending on the quantum) and still not be an MSC.

No we are saying that if your company was an MSC the consequences are that all income from the client will be regarded as taxable income to the MSC owner.

Which is why HMRC have been careful to exclude any companies who employed non family members as that destroyed their MSC argument

[Chevalier]

No we are saying that if your company was an MSC the consequences are that all income from the client will be regarded as taxable income to the MSC owner.

Which is why HMRC have been careful to exclude any companies who employed non family members as that destroyed their MSC argument

I’m not talking about the value of the deemed payment, I’m talking about the definition of what actually is an MSC

[jamesbrown]

So we agree that its the clients payment as income, which means the proportion paid can be much higher than 50% (depending on the quantum) and still not be an MSC.

I don't see how you got there from what I wrote. Anyway, no, I don't agree. Clause 61B(1)(c) isn't about the fraction of income received by the MSC that is paid out to the worker, which is dealt with in 61B(1)(b), rather it is dealing with the advantage gained by being paid via an MSC, regardless of how that advantage is gained and through what means the worker receives the payment (or from who).

In other words, if 1.0 is the fee charged and 0.75 is the multiplier (to achieve "net of tax") for payments received by the worker via the MSC route and 0.5 is the multiplier for payments received by the worker via the employed route, then 61B(1)(c) isn't saying that you are free and clear merely because you received 0.666 via the MSC route and 0.666 * 0.75 = 0.4995 < 0.5, which you would've received as an employee (1.0 * 0.5 = 0.5), i.e. it doesn't adjust the threshold from "equal to the greater part of the consideration" in 61B(1)(b) to greater than 66.6% of the consideration in this scenario. It is saying that 0.75 * 0.666 > 0.5 * 0.666, i.e., you received an advantage from the MSC being interposed.

Again, I am just a contractor like most of us posting here, but that is my reading of it.

[eek]

I’m not talking about the value of the deemed payment, I’m talking about the definition of what actually is an MSC

The definition of an MSC depending on how you read the Costello ruling (which is now case law) may be as simple as the director followed the advice of their accountant when setting how much was taken as salary.

I really wouldn't be trying to be clever here.

[DealorNoDeal]

In the following "noddy" example, if the PSC is treated as an MSC, what figure would be subject to PAYE, £85,000 or £70,000?

[eek]

In the following "noddy" example, if the PSC is treated as an MSC, what figure would be subject to PAYE, £85,000 or £70,000?

£85,000 I believe.

[jamesbrown]

Well, I originally leaned towards £85k, although I was mainly focused on the worst case scenario, but after reading the legislation/ESM and discussing with jofo above, I think it is pretty straightforwardly £70k, not £85k.

[jamesbrown]

£85,000 I believe.

I will say that a lot of commentators agree with you, but I think the legislation and ESM is actually quite clear on this point.

[Chevalier]

I don't see how you got there from what I wrote. Anyway, no, I don't agree. Clause 61B(1)(c) isn't about the fraction of income received by the MSC that is paid out to the worker, which is dealt with in 61B(1)(b), rather it is dealing with the advantage gained by being paid via an MSC, regardless of how that advantage is gained and through what means the worker receives the payment (or from who).

In other words, if 1.0 is the fee charged and 0.75 is the multiplier (to achieve "net of tax") for payments received by the worker via the MSC route and 0.5 is the multiplier for payments received by the worker via the employed route, then 61B(1)(c) isn't saying that you are free and clear merely because you received 0.666 via the MSC route and 0.666 * 0.75 = 0.4995 < 0.5, which you would've received as an employee (1.0 * 0.5 = 0.5), i.e. it doesn't adjust the threshold from "equal to the greater part of the consideration" in 61B(1)(b) to greater than 66.6% of the consideration in this scenario. It is saying that 0.75 * 0.666 > 0.5 * 0.666, i.e., you received an advantage from the MSC being interposed.

Again, I am just a contractor like most of us posting here, but that is my reading of it.

As indeed we all are (+1)

In my own opinion I see 61B(1)(a)-(c) as protections in the legislation to ensure that Ltds aren’t inadvertently caught by the legislation

In the case of (c) I see this asking the question of how much you received in your pocket in absolute terms compared to what an employee would have received earning the same total fees - based upon the presumption that probably nobody would put themselves in such a structure (MSC) if they earned less.

[GregRickshaw]

In the following "noddy" example, if the PSC is treated as an MSC, what figure would be subject to PAYE, £85,000 or £70,000?

I would lean towards the £70k. Just don't see how HMRC can claim liabilities on money which has not been paid to an employee, how can anything be disguised renumeration, if it's sitting in a company and a company bank account somewhere and never been paid to anyone?