Churchill Knight & Boox clients being investigated as Managed Service Companies

[Bruce88]

2. Are HMRC treating payments to pension schemes as 'payments to the individual'?

In my dealings with HMRC, they stated their belief that pension contributions are 'payments to the individual' for the purposes of clause 61B(1)(b) but do not form part of the deemed calculation.

I have disputed this interpretation. Employer pension contributions made directly from a business account to a pension scheme are not payments received by the individual, either directly or indirectly. If they were classed as 'payments' the HMRC would apply tax when they arise.

[PurelyBlue]

... there should be no doubt about the goal, which is why everyone that continues to leverage the services of a particular type of online contractor accountancy should take this very seriously (as clients of CK and Boox will surely attest, the pain begins long before the legal position is clear).

Agreed, and switching to something like FreeAgent and using an accountant for year-end work can be cheaper too.

In my dealngs with HMRC, they stated their belief that pension contributions are 'payments to the individual' for the purposes of clause 61D(1)(b) but do not form part of the deemed calculation.

That seems like odd logic, given the similarity of the phrasing in the legislation:

* MSC Condition: "payments are made (directly or indirectly) to the individual (or associates of the individual) of an amount equal to the greater part or all of the consideration for the provision of the services"
* DEP Calculation: "the worker, or an associate of the worker, receives (from any person) a payment or benefit which can reasonably be taken to be in respect of the services"

These sound very similar to me. Maybe HMRC are hoping "indirectly" does a lot of work here, but I think the problem with their argument may be that (in the case of employer pension contributions) the individual technically hasn't been paid (and maybe never will be).

I have disputed this interpretation. Employer pension contributions made directly from a business account to a pension scheme are not payments received by the individual, either directly or indirectly.

Yes, I think this is a good thing to challenge.

[PurelyBlue]

In case it's helpful for others, I've worked through a manual calculation for the net liability. I realise it's been a lot of posts about this, but I'm trying to give everyone a good idea about how to calculate it if they want to do so themselves (or correct me if I messed up somewhere). So this will probably be my last post about this!

Tax year is again 2018/19, paying salary and dividends up to the higher rate threshold (£46,350) for that year, with salary set to Employer's NI threshold, hence:

* Salary: £8,424
* Dividends: £37,926

Work out Gross Profit (to be able to pay dividends)

Corp Tax = Gross Profit * 19%
Dividends = Gross Profit - Corp Tax
hence Dividends = Gross Profit - (Gross Profit * 19%)
hence Gross Profit = Dividends (£37,926) / 81% = £46,822.22

Calculate PSC Tax

Corp Tax = Gross Profit (£46,822.22) * 19% = £8,896.22

Dividends Taxable @ 0% (personal allowance): Personal Allowance (£11,850) - Salary (£8,424) = £3,426
Dividends Taxable @ 0% (dividend allowance): Dividend Allowance (£2,000)
Dividends Taxable @ 7.5%: Dividends (£37,926) - Dividends Taxable @ 0% (£3,426 + £2,000) = £32,500
Dividend Tax: Dividends Taxable @ 7.5% (£32,500) * 7.5% = £2,437.50

Total Tax: Corp Tax (£8,896.22) + Dividend Tax (£2,437.50) = £11,333.72

Calculate MSC Tax

DEP + DEP Er NI = Dividends (£37,926)

DEP Er NI = DEP * 13.8%
hence DEP + (DEP * 13.8%) = Dividends (£37,926)
hence DEP = Dividends (£37,926) / 113.8% = £33,326.89

- Apply Tax to DEP:

DEP Er NI: DEP (£33,326.89) * 13.8% = £4,599.11

DEP Ee NI Taxable @ 0%: Ee NI Threshold (£8,424) - Salary (£8,424) = £0
DEP Ee NI Taxable @ 12%: DEP (£33,326.89) - DEP Ee NI Taxable @ 0% (£0) = £33,326.89
DEP Ee NI: DEP Ee NI Taxable @ 12% (£33,326.89) * 12% = £3,999.22

DEP Income Taxable @ 0% (personal allowance): Personal Allowance (£11,850) - Salary (£8,424) = £3,426
DEP Income Taxable @ 20%: DEP (£33,326.89) - DEP Income Taxable @ 0% (£3,426) = £29,900.89
DEP Income Tax: DEP Income Taxable @ 20% (£29,900.89) * 20% = £5,980.18

Total DEP Tax: DEP Er NI (£4,599.11) + DEP Ee NI (£3,999.22) + DEP Income Tax (£5,980.18) = £14,578.51

- Dividends are reduced by the DEP:

Reduced Dividends: Dividends (£37,926) - DEP (£33,326.89) = £4,599.11
Dividends Taxable @ 0% (dividend allowance): Dividend Allowance (£2,000)
Dividends Taxable @ 7.5%: Reduced Dividends (£4,599.11) - Dividends Taxable @ 0% (£2,000) = £2,599.11
Dividend Tax: Dividends Taxable @ 7.5% (£2,599.11) * 7.5% = £194.93

- Gross Profit reduced by both DEP and DEP Er NI:

Reduced Gross Profit: Gross Profit (£46,822.22) - DEP (£33,326.89) - DEP Er NI (£4,599.11) = £8,896.22
Reduced Corp Tax: Reduced Gross Profit (£8,896.22) * 19% = £1,690.28

- So finally:

Total Tax: Total DEP Tax (£14,578.51) + Dividend Tax (£194.93) + Reduced Corp Tax (£1,690.28) = £16,463.72

Calculate Net Liability

Net Liability: Total MSC Tax (£16,463.72) - Total PSC Tax (£11,333.72) = £5,130
Interest @ 20%: Net Liability (£5,130) * 20% = £1,026

Net Liability with Interest: Net Liability (£5,130) + Interest @ 20% (£1,026) = £6,156

[woody1]

PurelyBlue you may be getting a call from HMRC...
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...asking you to help them work it out.

[Hareforthebear]

Perhaps they’re sticking to their pie in the sky figures as if they were to produce calculations such as this it hardly seems like it would be considered a worthwhile economic pursuit, if that comes into their decision making in any way whatsoever. Easy when it’s not their money I guess.

[woody1]

Perhaps they’re sticking to their pie in the sky figures as if they were to produce calculations such as this it hardly seems like it would be considered a worthwhile economic pursuit, if that comes into their decision making in any way whatsoever. Easy when it’s not their money I guess.

As someone said earlier, this isn't about money per se. It's just the latest phase of HMRC's ongoing war against contractors. They won't let up until the overwhelming majority are on PAYE.

[PurelyBlue]

In case anyone has missed this…

How Boox’s ‘MSC contractors’ should deal with an HMRC Standstill Agreement


https://www.contractoruk.com/news/00...agreement.html

It looks like a more reasonable article has been posted today: MSC clarifier: The truth about HMRC standstill agreements

[woody1]

It looks like a more reasonable article has been posted today: MSC clarifier: The truth about HMRC standstill agreements

+1

[gikap]

Will media interest for loan charge scandal at some point transfer to MSC investigation? #MSCScandal is already making some noise.

[jamesbrown]

Telegraph is a bit late to the party, but not a bad article:

https://www.telegraph.co.uk/money/ta...lancers-bills/

( Turn off javascript for this domain to access, if you don't have a sub. )