Churchill Knight & Boox clients being investigated as Managed Service Companies

[jamesbrown]

Hector argues a monthly fee is benefitting.

The letter also clearly states from Hector 'just one' failure of those points.

Again, either you or HMRC is confused about this point and I suspect it is you.

A contractor's company that received services from an MSCP may or may not be an MSC depending on whether the MSCP was "involved with" the contractor's company. An MSC is only an MSC if it received services from an MSCP and the MSCP was involved with the MSC.

In relation to being "involved with", the legislation continues:

(2)An MSC provider is “involved with the company” if the MSC provider or an associate of the MSC provider—

(a)benefits financially on an ongoing basis from the provision of the services of the individual,

(b)influences or controls the provision of those services,

(c)influences or controls the way in which payments to the individual (or associates of the individual) are made,

(d)influences or controls the company's finances or any of its activities, or

(e)gives or promotes an undertaking to make good any tax loss.

(3)A person does not fall within subsection (1)(d) merely by virtue of providing legal or accountancy services in a professional capacity.

Indeed, any one of the conditions (2)(a) through (2)(e) is potentially sufficient to be "involved with", since the legislation says "or" at row (2)(d), not "and".

However, it is clearly false that the provision of accountancy services associated with a fee is sufficient to meet condition (2)(a) because condition (3) explicitly indicates so, noting that (1)(d) is a clause that captures (2) in its entirety.

Thus, it is exceptionally unlikely that HMRC's case rests on the argument that an accountant, also identified as an MSCP, is "involved with the company" merely because the company pays a fee to that MSCP. Accountancy is a chargeable service and an MSCP can also offer accountancy services. Remember, clause (2) only exists because it is insufficient that the service provider is an MSCP, rather that it must be "involved with" the MSC. The whole of clause (2), as well as clause (3), would be moot if a payment were sufficient "involvement" because MSCPs and accountants alike receive payments for their services.

Instead, it is rather more likely that HMRC has built (or is intending to build) a case in relation to (2)(c), (2)(d) and potentially (2)(e). Most specifically, it is likely to be related to the way a company decides to make salary and dividend payments to its officers/shareholders and the involvement of the MSCP in that process. I predict that it is not likely to be related to (2)(a) and (2)(b) if the services look close to accountancy because an accountant is unlikely to be involved with the provision of the services or benefit directly from the provision of those services (e.g., through a fee tied to that service provision or to an invoice). The CBS case was extremely unusual in that regard.

There is probably more than enough meat for HMRC in (2)(c) and (2)(d) for those that were either side of the chain of "completely hands off accountancy", since "completely hands off accountancy" is another way of saying MSC.

[GregRickshaw]

I'm not that close to this, and haven't read all the detail, but just a reminder that HMRC do not make the rules. They interpret them, and quite often get that interpretation wrong, which is the point of tribunals, appeals and all the rest of it.

Fair shout but all that waiting? Not for me.

If that one point is all that makes yourCo a MSC, then I'd say they have a extremely weak case, not a strong one. Any client who has continued to pay the accountant while not in contract could make a good argument that they're paying for a service, not that CK were benefitting financially on an ongoing basis from the provision of the services of the individual.

This is what is written in the letter though just one of those things have to fail.

The other points which have been picked up on in the letter (three points according to Hector CK have failed on) could be argued and discussed.

Really not sure how though, if Hector say monthly fees are benefiting, (These are their words not mine or speculation) we can argue that. Be very happy if they could.
Yes it sounds very weak indeed just that one point but from the letter (again not my words) that's all they needed (pre hearing) to declare CK and all of us as MSC and make this a serious challenge.

Whilst one should never be complacent, I do think talk of losing your house/bankruptcy is premature.

Again depends on your life I guess.

Th

[Supergirl007]

Excuse me for my ignorance, as I am honestly not sure what to do, but whilst this goes on, is it wise for me to find another accountant and run everything through Xero?

[GregRickshaw]

Again, either you or HMRC is confused about this point and I suspect it is you.

A contractor's company that received services from an MSCP may or may not be an MSC depending on whether the MSCP was "involved with" the contractor's company. An MSC is only an MSC if it received services from an MSCP and the MSCP was involved with the MSC.

In relation to being "involved with", the legislation continues

Indeed, any one of the conditions (2)(a) through (2)(e) is potentially sufficient to be "involved with", since the legislation says "or" at row (2)(d), not "and".

However, it is clearly false that the provision of accountancy services associated with a fee is sufficient to meet condition (2)(a) because condition (3) explicitly indicates so, noting that (1)(d) is a clause that captures (2) in its entirety.

Thus, it is exceptionally unlikely that HMRC's case rests on the argument that an accountant, also identified as an MSCP, is "involved with the company" merely because the company pays a fee to that MSCP. Accountancy is a chargeable service and an MSCP can also offer accountancy services. Remember, clause (2) only exists because it is insufficient that the service provider is an MSCP, rather that it must be "involved with" the MSC. The whole of clause (2), as well as clause (3), would be moot if a payment were sufficient "involvement" because MSCPs and accountants alike receive payments for their services.

Instead, it is rather more likely that HMRC has built (or is intending to build) a case in relation to (2)(c), (2)(d) and potentially (2)(e). Most specifically, it is likely to be related to the way a company decides to make salary and dividend payments to its officers/shareholders and the involvement of the MSCP in that process. I predict that it is not likely to be related to (2)(a) and (2)(b) if the services look close to accountancy because an accountant is unlikely to be involved with the provision of the services or benefit directly from the provision of those services (e.g., through a fee tied to that service provision or to an invoice). The CBS case was extremely unusual in that regard.

There is probably more than enough meat for HMRC in (2)(c) and (2)(d) for those that were either side of the chain of "completely hands off accountancy", since "completely hands off accountancy" is another way of saying MSC.

All of this you have quoted gives us all great hope and CK have formulated a fairly robust response which reads similar to your Google searching

I truly hope what you have highlighted and what CK have highlighted is correct BUT that is not what we are dealing with right now.

We are talking here about what is written in the letters we have received and I am not confused merely relating the printed word. I hope Hector is confused.

Remember these are their printed words not mine! I am reciting it as it is written. This is not an opinion piece I'm writing here.

It may be weak it may be anything but this is what is written down on the letters have so far.

I would suspect the same as you the punch up is over 2(c) and 2 (d) but from letters Hector says they need just one to declare us all MSCs which they have, they may have all three.

[Fred Bloggs]

Excuse me for my ignorance, as I am honestly not sure what to do, but whilst this goes on, is it wise for me to find another accountant and run everything through Xero?

Don't overlook FreeAgent would be my advice. Almost a default finance system for contractors.

[jamesbrown]

All of this you have quoted gives us all great hope and CK have formulated a fairly robust response which reads similar to your Google searching

I truly hope what you have highlighted and what CK have highlighted is correct BUT that is not what we are dealing with right now.

We are talking here about what is written in the letters we have received and I am not confused merely relating the printed word. I hope Hector is confused.

Remember these are their printed words not mine! I am reciting it as it is written. This is not an opinion piece I'm writing here.

It may be weak it may be anything but this is what is written down on the letters have so far.

I would suspect the same as you the punch up is over 2(c) and 2 (d) but from letters Hector says they need just one to declare us all MSCs which they have, they may have all three.

Well, I did say either you or HMRC likely have it wrong. Remember, HMRC get stuff wrong all the time. Furthermore, they probe to clarify. It may not be that they have a strong opinion one way or another but see an opening. I haven't seen the letter or anything more than what has been written in this thread. Did I miss a post that detailed the exact contents of the letter back-and-forth between HMRC and CK (genuine question, I haven't read every post in this thread)?

[jamesbrown]

Excuse me for my ignorance, as I am honestly not sure what to do, but whilst this goes on, is it wise for me to find another accountant and run everything through Xero?

It is probably not a bad idea to switch at year end, yes. On the other hand, if you really want to eliminate all risk (of being caught in future years), then you would need to do the books yourself with the aid of FA or Xero or similar, perhaps paying an accountant to review your year-end draft returns (accounts for HMRC and CH and SATR being the major ones). This is not a small leap, though. For example, if you forget something like submitting your annual confirmation statement to CH it can have severe consequences (but then, that is also true now, accountant or no accountant). However, with some reading and good bookkeeping software, it is not that hard.

[eek]

Again, either you or HMRC is confused about this point and I suspect it is you.

A contractor's company that received services from an MSCP may or may not be an MSC depending on whether the MSCP was "involved with" the contractor's company. An MSC is only an MSC if it received services from an MSCP and the MSCP was involved with the MSC.

In relation to being "involved with", the legislation continues:



Indeed, any one of the conditions (2)(a) through (2)(e) is potentially sufficient to be "involved with", since the legislation says "or" at row (2)(d), not "and".

However, it is clearly false that the provision of accountancy services associated with a fee is sufficient to meet condition (2)(a) because condition (3) explicitly indicates so, noting that (1)(d) is a clause that captures (2) in its entirety.

Thus, it is exceptionally unlikely that HMRC's case rests on the argument that an accountant, also identified as an MSCP, is "involved with the company" merely because the company pays a fee to that MSCP. Accountancy is a chargeable service and an MSCP can also offer accountancy services. Remember, clause (2) only exists because it is insufficient that the service provider is an MSCP, rather that it must be "involved with" the MSC. The whole of clause (2), as well as clause (3), would be moot if a payment were sufficient "involvement" because MSCPs and accountants alike receive payments for their services.

Instead, it is rather more likely that HMRC has built (or is intending to build) a case in relation to (2)(c), (2)(d) and potentially (2)(e). Most specifically, it is likely to be related to the way a company decides to make salary and dividend payments to its officers/shareholders and the involvement of the MSCP in that process. I predict that it is not likely to be related to (2)(a) and (2)(b) if the services look close to accountancy because an accountant is unlikely to be involved with the provision of the services or benefit directly from the provision of those services (e.g., through a fee tied to that service provision or to an invoice). The CBS case was extremely unusual in that regard.

There is probably more than enough meat for HMRC in (2)(c) and (2)(d) for those that were either side of the chain of "completely hands off accountancy", since "completely hands off accountancy" is another way of saying MSC.

Conditions 2c and 2d is definitely where the likely CK and actual CBS case correlate and the CBS tribunals do seem to have rather opened up the definition of what is meant in 2c and 2d.

For convenience I'll post them again below

(c)influences or controls the way in which payments to the individual (or associates of the individual) are made,

(d)influences or controls the company's finances or any of its activities, or

[THEPUMA]

I think HMRC's point re CK's fee structure is that their fee was reduced in a month where the contractor wasn't working, which is crucially different to how most accountants operate.

I still think CK should win on the accountancy exemption, if nothing else.

If I were a Churchill Knight client, I would be using Chartergates. Matt Boddington is by some considerable distance the most impressive professional I have ever spoken to about contractor-specific tax matters including IR35, the settlements legislation and the MSC legislation. I'm amazed CK haven't engaged him to defend them.

[GregRickshaw]

Well, I did say either you or HMRC likely have it wrong. Remember, HMRC get stuff wrong all the time. Furthermore, they probe to clarify. It may not be that they have a strong opinion one way or another but see an opening. I haven't seen the letter or anything more than what has been written in this thread. Did I miss a post that detailed the exact contents of the letter back-and-forth between HMRC and CK (genuine question, I haven't read every post in this thread)?

I am happy to share it with you in a DM. As I said we value your insight and opinions.