Churchill Knight & Boox clients being investigated as Managed Service Companies

[Bruce88]

The legislation isn't "staged" or ordered in that way. Either the relationship is one of MSC and MSCP or it isn't. If it is, then the ordinary rules for expenses w/r to employees apply, as they would to a continuous long employment with the MSC (which is outlined in an ESM, for example), otherwise it's BAU and you can get tax relief on any legitimate business expenses.

OK, so the question is – are expenses included as ‘payments to the individual’ at clause 61(B)(1)(b)?

I can understand that rules around personal expenses change at section 61D to 61G when it comes to calculating the DEP.

[Guy Incognito]

HMRC just acknowledged my claim for CT relief, only took them seven months.

[jamesbrown]

OK, so the question is – are expenses included as ‘payments to the individual’ at clause 61(B)(1)(b)?

I can understand that rules around personal expenses change at section 61D to 61G when it comes to calculating the DEP.

Well, it says "payment" and not "payment or benefit", which is the formulation used throughout the DEP calculation.

On the other hand, HMRC's opinion appears to be that it includes the aggregate of payments and benefits:

https://www.gov.uk/hmrc-internal-man...manual/esm3510

The individual (worker) supplying their services to the third party client receives payments (or an aggregate of payments and benefits) from the service company equal to the greater part of the sums received by the service company from the client for the services provided by the worker.

In other words, as I said before, this will most likely be argued at a later tribunal.

[Bruce88]

Well, it says "payment" and not "payment or benefit", which is the formulation used throughout the DEP calculation.

On the other hand, HMRC's opinion appears to be that it includes the aggregate of payments and benefits:

https://www.gov.uk/hmrc-internal-man...manual/esm3510



In other words, as I said before, this will most likely be argued at a later tribunal.

It doesn’t seem to be a very well defined clause. The term ‘payments’ can be open to interpretation. I suppose HMRC will try to include as wide a definition as possible. Regarding their internal manual they can and do ignore this guidance as and when it suits them, as I’m sure you know! But I would argue that benefits do not include allowable expenses.

When I look at the whole of 61B logically (as per my previous post at #2609) then I still believe it is only supposed to be referring to payments received which are normally taxable.

[woody1]

I'd be careful about reading the legislation too literally. If there's any ambiguity/uncertainty, HMRC will argue a purposive interpretation and a tribunal will almost certainly concur. The purpose being to tax you like a permie.

[jamesbrown]

It doesn’t seem to be a very well defined clause. The term ‘payments’ can be open to interpretation. I suppose HMRC will try to include as wide a definition as possible. Regarding their internal manual they can and do ignore this guidance as and when it suits them, as I’m sure you know! But I would argue that benefits do not include allowable expenses.

When I look at the whole of 61B logically (as per my previous post at #2609) then I still believe it is only supposed to be referring to payments received which are normally taxable.

Indeed, they ignore their own guidance when it suits them, but never when it doesn't suit them to do so

Overall, the purpose of the legislation is to avoid an MSC benefiting from the tax breaks open to a legitimate business and this is only achieved if all money paid to the user is subject to PAYE and there are no pre-tax benefits or expenses, other than those available to employees. That is the overarching purpose of the legislation, and that will be upheld. But there is a legitimate question about specific details, such as the composition of the calculation for 61(B)(1)(b) w/r to pension contributions, which will likely be resolved at tribunal. To my reading, payments would not include employer pension contributions, but it will need to be argued.

[ritwolf]

HMRC just acknowledged my claim for CT relief, only took them seven months.

Did they accept and register it, or they said it can't be considered while the case is ongoing?

[Guy Incognito]

Let's imagine pension contributions ARE included. Are we somehow going to be allowed to pull the money out of the scheme to pay the tax bill?

[jamesbrown]

Let's imagine pension contributions ARE included. Are we somehow going to be allowed to pull the money out of the scheme to pay the tax bill?

For the purposes of 61(B)(1)(b) only, I think. The DEP itself applies to payments received. For the same reason, it doesn’t include retained profits.

[hudson]

Will this not present issues with double taxation on the same 'income' with the pension contributions also being subject to tax when they are eventually paid out?