Churchill Knight & Boox clients being investigated as Managed Service Companies

[geekergosum]

Jeez, what a can of worms.

I'm not sure I'd trust them to calculate any of that correctly.

I'm going to send them the 500+ itemised lunches I had, might setup chatgpt to do script to send each item via an email at a time.

[GregRickshaw]

So it's not just me thinking this is very odd?

Because I am completely baffled by what they are asking for.

Plus I have sent multiple communication about overpayment relief from the start...because I didn't want to run into their "You get 4 years we get eternity" rules.

I've stopped reading tax codes and on to the Kafka (love you can't be double taxed until be double tax you - and then never return your money)

And calculating turnover on VAT...is this tax on tax?

It's very strange they have mentioned VAT finally, I wonder if there is movement to also claim back VAT if your PSC is no longer considered a company and therefore no longer liable for VAT, if some legal body has pushed that door hard enough maybe Hector realises to give back Dividends, CT and VAT would end up costing them money even with the PAYE and NI contributions.

I agree this has taken a very strange turn at this late stage, as always we mere mortals don't have a clue what is going on.

Oh BTW you mention 'never return your money' I paid in full (the figures at the time) on account (POA) subsequently had the first two years thrown out, agreed by Hector and my tax lawyer and have not seen a penny back yet. We send them weekly letters now we never get a reply, we gave up calling them.

[GregRickshaw]

I'm going to send them the 500+ itemised lunches I had, might setup chatgpt to do script to send each item via an email at a time.

Funny as that may be and I know you're not serious (and don't call me Shirley) not a great idea to make this any harder than it needs to be (that's what she said)

[geekergosum]

It's very strange they have mentioned VAT finally, I wonder if there is movement to also claim back VAT if your PSC is no longer considered a company and therefore no longer liable for VAT, if some legal body has pushed that door hard enough maybe Hector realises to give back Dividends, CT and VAT would end up costing them money even with the PAYE and NI contributions.

IT doesn't make sense to me, as if I am to be charged NI and PAYE on the VAT then I am being taxed on the tax I have paid them surely? I did calculate that with VAT, CT and Dividends I paid them more tax than I do now I am FT.

I agree this has taken a very strange turn at this late stage, as always we mere mortals don't have a clue what is going on.

How can we know when they don't even have a clue!

Oh BTW you mention 'never return your money' I paid in full (the figures at the time) on account (POA) subsequently had the first two years thrown out, agreed by Hector and my tax lawyer and have not seen a penny back yet. We send them weekly letters now we never get a reply, we gave up calling them.

When talking to my wife about this I did mention your posts specifically about them holding onto cash. I cannot believe how they think this is even legal, as mentioned numerous times HMRC seem to be out of control with how they act and behave. I still 100% believe that they deliberately drag their heels to maximise penalties and interest payments.

Funny as that may be and I know you're not serious (and don't call me Shirley) not a great idea to make this any harder than it needs to be (that's what she said)

In my internal "Head World" this has already been done and it frustrated HMRC so much they gave up. In the real world I have an excel sheet nicely laid out into sections that are super easy to review.

[Ketto]

The VAT thing is insane. So they calculate your eligibility for the VAT threshold and corporation tax net of VAT, but for this - sod it we’ll add the VAT in too, even though you have already paid it.

They may as well just say they are adding 20% because they feel like it.

[geekergosum]

More muddying of the waters:

Clarification that Request relates to[My PSC]

I apologise if there was any confusion caused. The matter is regarding the company [My PSC].

We received the company’s appeal against the tax determinations and NIC decision and these are currently stood over until the outcome of the enquiry.

The information/figure request is with regards to the amounts on these tax determinations and NIC decision.

The purpose is to re-calculate these amounts, to now calculate them on actual figures/information from [My PSC], as the amounts were originally calculated using best judgement based on information HMRC held at the time.

As the legislation deems that all payments received by a worker working through a Managed Service Company (MSC) to be employment income, it means all payments received by individuals providing their services through MSCs are subject to PAYE for tax and NIC.

This is why the letter asks for information on all payments that you (the worker) received from [My PSC], as these figures are used in the calculation.

Overpayment Relief

I note you had discussed this previously and my colleague had advised that it wasn’t a process that the MSC team was dealing with at the time. However, we are now working with the relevant departments.

I can confirm that we’ll accept late claims, but please ensure the relief claim details are accurate as the MSC Team are not responsible for processing or calculating potential relief amounts.

If you have copies of any claims, please send it over to us and, if there’s any additional relief claims to be made, you can send these too, which we’ll hold on file until the conclusion of the enquiry.

PAYE Calculations

The PAYE tax and NIC are calculated on the payments received by the worker [Me] from the company [My PSC] and don’t include VAT.

Expenses
Reimbursed expenses can be claimed and may be deemed allowable and deducted from the DEP if, as advised, it could have been claimed as expenses against income tax if the worker had been an employee of the client and had paid for the expenses themself.

However, we do require the further information to review these as it is important that with reviews of expenses, we show consistency in what is deductible and what is not.

Compliance Check/Enquiry
The compliance check is the enquiry with/into [My PSC] and HMRC’s position was explained in the letter issued with the determination on 25 March 2022.

So my takeaways

- The letter is addressed to My PSC but isn't about them, but it is
- They weren't doing overpayment claims so please send in the overpayment claims we told you not to do
- VAT...well I have not idea about that anymore!
- The compliance check from 2022 wasn't into me...it was into Boox. HMRC didn't speak to any PSC, but they may have spoken to our 'accountant'. This feels like them making up rules as they go.

[woody1]

Hopefully I'm not muddying the waters ever further but FWIW here's my take.

1. It's all about what you (+partner/spouse) personally received (salary+divis). You're being taxed (+nics) under PAYE on this amount.
2. So VAT doesn't come into it because that was already taken care of before you received anything.
3. Expenses are only allowed if you could have claimed them had you been an employee of the client. For example, that rules out travel to/from the client site.
4. As for overpayment relief, it's only right that you should get a credit against PAYE tax & nics for anything you've already paid (CT, income tax, nics, dividend tax). Will they take into account tax/nics a partner/spouse has paid? Who knows.
5. Don't know how they're going to treat company pension contributions. Maybe as though they were personal contributions?

[ritwolf]

Hopefully I'm not muddying the waters ever further but FWIW here's my take.

1. It's all about what you (+partner/spouse) personally received (salary+divis). You're being taxed (+nics) under PAYE on this amount.
2. So VAT doesn't come into it because that was already taken care of before you received anything.
3. Expenses are only allowed if you could have claimed them had you been an employee of the client. For example, that rules out travel to/from the client site.
4. As for overpayment relief, it's only right that you should get a credit against PAYE tax & nics for anything you've already paid (CT, income tax, nics, dividend tax). Will they take into account tax/nics a partner/spouse has paid? Who knows.
5. Don't know how they're going to treat company pension contributions. Maybe as though they were personal contributions?

If I understand correctly, the company's turnover doesn't matter? It's only the amount that the "worker" was paid (salary and dividends).

Do you guys interpret the same? If so, why even mention VAT?

[woody1]

If I understand correctly, the company's turnover doesn't matter? It's only the amount that the "worker" was paid (salary and dividends).

Do you guys interpret the same? If so, why even mention VAT?

The letters from HMRC aren't very well worded, so it's hard to tell. In my mind, VAT shouldn't matter because it has no bearing on the remuneration you received.

Turnover shouldn't matter either but it doesn't surprise me that they would ask for this. They may use it to cross check the figures you've supplied for salary, dividends, pension contributions, expenses etc. (to flag up if any monies are unaccounted for).

[jamesbrown]

If I understand correctly, the company's turnover doesn't matter? It's only the amount that the "worker" was paid (salary and dividends).

Do you guys interpret the same? If so, why even mention VAT?

Chapter 9 ITEPA says this:

61B Meaning of “managed service company”


(1)A company is a “managed service company” if—

....

(b)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

My emphasis. It is a precondition that the amount paid to the individual is the greater part of the amount received for the services, i.e., 50% or more. Without that, YourCo cannot be an MSC. So, yes, the turnover is irrelevant, except insofar as it determines whether the amount paid out was "the greater part".

However, HMRC's end goal will be similar to what is achieved with IR35, namely a deemed payment on the total amount. On the face of it, they cannot achieve this with Chapter 9 ITEPA, but I suppose they could try other avenues later, such as IR35. However, this is pure speculation and the straightforward answer to your question is that turnover doesn't matter, except in the limited sense identified here (the calculation above).