Churchill Knight & Boox clients being investigated as Managed Service Companies

[nekro]

Does have anyone have a template for the NI claim? Am wondering if I can send the same letter WTT sent for the income tax demand

I've just received my NIC demand and would like to know the same.

Also, does anyone have a spreadsheet template that they can share that will help with all of the calculations? I'm having trouble getting close to their figures.

[Bruce88]

I have just received my determination and HMRC seem tohave added more detail to their case.

HMRC believes conditions a, c, and d are satisfied thus The App Accounting Group Ltd/TA BOOX (referred to as BOOX within the following explanations of conditions a, c & d) are a Managed Service Company Provider and are involved with the client companies:

Condition a, it is HMRC’s view that this test is satisfied as follows:

BOOX offer 2 different payment methods. Pay monthly or pay in advance

• Pay monthly must be paid by Direct Debit as per the terms and conditions, clients must continue to pay BOOX regardless of whether they are receiving income.
• Pay in advance clients pay for 6 months at a time and if cancelled during these six months no refund is given
• If clients fail to pay then access to the online portal is suspended

Condition c, it is HMRC’s view that this test is satisfied as follows:

• BOOX’s product is designed for clients to follow a low salary, high dividend model. Informing customers the best way to pay themselves, for example paying a salary that would require no PAYE Income Tax or NICs to be paid, can be seen as influencing
• BOOX’s product is specifically designed for clients to utilise a low salary, high dividend model. There appears to be an immediate expectation that all clients operate this model as standard.
• BOOX’s product is sold to customer’s based on figures relating to a low salary, high dividend model within the sample exchanges HMRC have seen. Customers are influenced to pay themselves in this way
• In written sample exchanges seen by HMRC, BOOX fail to give their customers information that would be needed to enable them to make a fully informed judgement on how to pay themselves. For example, in the ‘salary setting letter’, the information provided to customers is specifically targeted towards them operating a low salary, high dividend model, i.e there is no information about the higher tax brackets, just the minimum thresholds.
• BOOX tell their clients to make three separate payments from the company accounts to personal accounts for dividends, salary and expenses. This is so the BOOX health check can take place.

Condition d it is HMRC’s view that this test is satisfied as follows:

• Influence over the company’s finances exist as a result of having influence over the way the individual is paid.
• BOOX influence the company’s finances or any of its activities by influencing the choice of bank account used by the client companies. Without choosing a certain bank account, BOOX’s product wouldn’t work as intended and the individual client companies would have to complete additional admin tasks.
• Clients comply with the operating structures of the online App and therefore BOOX have an element of control over the company, for example, creating and raising invoices or payroll.
• Once an invoice amount has been paid into a user’s bank account by the client, the user must then mark those invoices as being ‘paid’ on the app/portal, i.e - they are no longer ‘outstanding’. This lets the app/portal know those monies have been received in line with the invoiced amount and are credited in the user’s income.
• The director then chooses a payment date, being the date on which they intend to pay themselves their salary and dividend out of the bank account. The app/portal then calculates a pay breakdown which shows :
  • How much the director should pay themselves as salary based on their decision following the salary setting letter
  • How much the director should pay themselves for reimbursement of expenses (expenses calculated using data from invoices and inputted onto the expenses page of app/portal)
  • How much Boox recommends the director should pay themselves as dividends

There is no independence from the portal and by extension BOOX, therefore Directors are not discharging their obligations without external influence.

[Fred Bloggs]

Oh dear. If Hector wins the case against Boox and or CK the floodgates definitely open for further cases.

[jamesbrown]

I'd be very surprised if these were the actual arguments presented at tribunal, since many of them are incoherent. Taking one of many examples, "pay BOOX regardless of whether they are receiving income". Condition A is all about linking payments to service provision and this is an example of the opposite and/or routine accountancy. Whether the payments are per set of year-end returns or conveniently split into monthly installments (which, afterall, is what the monthly payments represent), the statutory accounts must be filed, regardless of service provision. There is a better argument against a reduced fee with dormant companies, for example. Once a tax barrister gets involved, the arguments will probably change or HMRC will be in trouble.

[yama]

I've just received my NIC demand and would like to know the same.

If your company is a one-man band then it's my understanding that this NIC letter—sent to you the employee, not the company director—can be ignored and just the one sent to the company should be appealed. I'm not 100% confident that is correct, however!

[PurelyBlue]

I'd be very surprised if these were the actual arguments presented at tribunal

I'm not sure, I think these are probably the best they'll be able to come up with, because (IMO) the case isn't particularly strong. Can you suggest better arguments they might present?

[GregRickshaw]

I have just received my determination and HMRC seem tohave added more detail to their case.

HMRC believes conditions a, c, and d are satisfied thus The App Accounting Group Ltd/TA BOOX (referred to as BOOX within the following explanations of conditions a, c & d) are a Managed Service Company Provider and are involved with the client companies:

Condition a, it is HMRC’s view that this test is satisfied as follows:

BOOX offer 2 different payment methods. Pay monthly or pay in advance

• Pay monthly must be paid by Direct Debit as per the terms and conditions, clients must continue to pay BOOX regardless of whether they are receiving income.
• Pay in advance clients pay for 6 months at a time and if cancelled during these six months no refund is given
• If clients fail to pay then access to the online portal is suspended

Condition c, it is HMRC’s view that this test is satisfied as follows:

• BOOX’s product is designed for clients to follow a low salary, high dividend model. Informing customers the best way to pay themselves, for example paying a salary that would require no PAYE Income Tax or NICs to be paid, can be seen as influencing
• BOOX’s product is specifically designed for clients to utilise a low salary, high dividend model. There appears to be an immediate expectation that all clients operate this model as standard.
• BOOX’s product is sold to customer’s based on figures relating to a low salary, high dividend model within the sample exchanges HMRC have seen. Customers are influenced to pay themselves in this way
• In written sample exchanges seen by HMRC, BOOX fail to give their customers information that would be needed to enable them to make a fully informed judgement on how to pay themselves. For example, in the ‘salary setting letter’, the information provided to customers is specifically targeted towards them operating a low salary, high dividend model, i.e there is no information about the higher tax brackets, just the minimum thresholds.
• BOOX tell their clients to make three separate payments from the company accounts to personal accounts for dividends, salary and expenses. This is so the BOOX health check can take place.

Condition d it is HMRC’s view that this test is satisfied as follows:

• Influence over the company’s finances exist as a result of having influence over the way the individual is paid.
• BOOX influence the company’s finances or any of its activities by influencing the choice of bank account used by the client companies. Without choosing a certain bank account, BOOX’s product wouldn’t work as intended and the individual client companies would have to complete additional admin tasks.
• Clients comply with the operating structures of the online App and therefore BOOX have an element of control over the company, for example, creating and raising invoices or payroll.
• Once an invoice amount has been paid into a user’s bank account by the client, the user must then mark those invoices as being ‘paid’ on the app/portal, i.e - they are no longer ‘outstanding’. This lets the app/portal know those monies have been received in line with the invoiced amount and are credited in the user’s income.
• The director then chooses a payment date, being the date on which they intend to pay themselves their salary and dividend out of the bank account. The app/portal then calculates a pay breakdown which shows :
  • How much the director should pay themselves as salary based on their decision following the salary setting letter
  • How much the director should pay themselves for reimbursement of expenses (expenses calculated using data from invoices and inputted onto the expenses page of app/portal)
  • How much Boox recommends the director should pay themselves as dividends

There is no independence from the portal and by extension BOOX, therefore Directors are not discharging their obligations without external influence.

Thank you for sharing the Boox version of the captures, it looks very different to the original letters which arrived and about 1000 miles from the CK captures.

I would say 95% of this makes zero sense capture a has no logical argument...pay monthly or pay weekly, pay by direct debit for instance what is that nonsense? amongst others.

capture c clients have a low salary high dividend model - no sh** what else are one man band LTDs for? How have Boox influenced that... amongst others

capture d many of Boox's clients I imagine chose their own bank amongst others.


To be honest this is more clutching at straws than the original captures not sure if this is how Boox were presented early doors but it's nothing like the CK captures which frankly stand on fees and packaged products.

[jamesbrown]

> I'd be very surprised if these were the actual arguments presented at tribunal

I'm not sure, I think these are probably the best they'll be able to come up with, because (IMO) the case isn't particularly strong. Can you suggest better arguments they might present?

I've always said that I lean towards HMRC losing this, although CK and Boox pinned a massive target on their backs through their terrible advertising surrounding "hands free" accountancy and "solutions", which absolutely screamed MSCP.

In terms of the arguments presented, I think those surrounding Condition C will be the hardest to defend, depending on the extent to which a tribunal judge takes a literal interpretation (arguably on the same trajectory as the CBS judgement). It is hard to argue that there was no influence over the payments made to the individuals if they have evidence of CK/Boox recommending or describing the merits of a particular approach to extracting funds (vs. all other approaches) and how best to achieve it (e.g., through distinct payments). It doesn't really matter whether this is a common approach among contractors more generally.

Under Condition D, there may be some reasonable arguments too, depending on whether the portal herded clients towards a particular approach or, instead, provided complete flexibility and allowed the client to make informed choices. It's clear that HMRC believes the former and it's difficult to tell who is correct (I cannot comment, as I have no experience of their portals, but HMRC are more likely to have a case if the underlying software is bespoke or otherwise configured in a way that limits/herds). There is a distinction here between a client asking for advice about tax efficiency and the alleged MSCP making upfront assumptions or herding clients towards a particular approach that looks like a "solution".

Overall, the arguments don't advance things much and they aren't very precise/convincing IMHO (and some of the weaker assertions detract from the overall argument), but they will improve and become more focused once a tax barrister gets involved. Still, I haven't changed my opinion that HMRC will lose, although I wouldn't stake much money on it.

[Fred Bloggs]

Yes, there's not been much come to light that changes my opinion either. Those who elected for the higher tier "hands off" premium accounting offers are those who really need to be worried. In Hector's shoes I'd be focusing on those clients since they are quite likely MSC and actually chose to be by going for the premium service offering.

Those who really were running an independent business and just had the misfortune of choosing the wrong accountant for their book keeping don't have so much to worry about. That is, provided they can collect enough evidence to prove they were running a business in the true sense, so not an MSC. It might need a whole bunch of tribunals to get there though if HMRC start winning test cases.

There's a very long way for this to run yet.

[Guy Incognito]

If this was a criminal case the CPS would NEVER prosecute. HMRC make up any old nonsense and send you a bill for £200k.