Churchill Knight & Boox clients being investigated as Managed Service Companies

[jt1]

Hi folks, I’ve been lurking on this thread for a while, whilst also doing some background research into this issue. In an effort to possibly provide some reassurance to those who are having a pretty dreadful time right now I suggest you read the following https://www.gov.uk/hmrc-internal-man...manual/esm3520.

This doc is helpful in that it lays out HMRC’s MSC logic which lines up with the FT article. I’m not saying I agree with their logic but it does elaborate their thinking on what they consider influence and or control and importantly what they don’t, which will hopefully dispel some of the incorrect assumptions I’ve read in this thread.

Early in the doc it states that HMRCs starting position is if your service provider is considered an MSCP then they will initially consider all associated contractors MSCs, however they also state

“Even where some client companies are Managed Service Companies because a MSC Provider (or their associate) is involved with those companies, it does not necessarily follow that all client companies are MSCs if the relationship between the MSC Provider/associate and their clients is demonstrably different.”

A key HMRC perspective on MSCP influence, is if the accountant advises on profit distribution the HMRC really don’t like this. It is silent about portals indicating control as far as I can see.

I hope that this will help, it helped me with the specifics of the HMRC’s logic even though I disagree with it.

I wish you all good luck and honestly believe this to be a speculative exercise by the HMRC that will fail.

[jamesbrown]

then de facto each PSC was an MSC

No, because that is what clause (2) of ITEPA Chapter 9 Part 2 is all about, the necessary/sufficient conditions for being "involved with" an MSC. An MSCP can also be an accountant, which muddies things (so it depends on the facts, but probably they will attempt to apply this to all clients who received a similar "solution" or "package" from the MSCP). In other words, the poster above who mentions an SJD spreadsheet probably would be safer than someone using their portal (based on the arguments that HMRC is currently making). Again, though, it's easy to get into the mindset of accepting the arguments that HMRC is making, but they routinely lose at tax tribunals.

[superdoodle]

If anyone on here with Boox has received a letter and wouldn't mind sharing it, could you PM me? I'm keen to see the wording used but I imagine I won't get sight of my own letter for another few days, due to backlog at Boox.

[superdoodle]

No, because that is what clause (2) of ITEPA Chapter 9 Part 2 is all about, the necessary/sufficient conditions for being "involved with" an MSC. An MSCP can also be an accountant, which muddies things (so it depends on the facts, but probably they will attempt to apply this to all clients who received a similar "solution" or "package" from the MSCP). In other words, the poster above who mentions an SJD spreadsheet probably would be safer than someone using their portal (based on the arguments that HMRC is currently making). Again, though, it's easy to get into the mindset of accepting the arguments that HMRC is making, but they routinely lose at tax tribunals.

Was interested to read that HMRC have only won about 30% of their IR35 cases they've taken to tribunal. Shockingly low success rate for them. So yes agreed, I don't think this MSC action is an automatic guaranteed success for HMRC.

Surely you have a good case if you can demonstrate control of your business eg:

- you took advice from Boox/CK on most efficient salary and dividends and then sent an approval email back to say you accept or you want to tweak (you had to approve the amount you wanted to take in salary or dividends over the year via email with Boox)
- changed or overrode your agreed dividends settings throughout the year (I always changed mine in the portal each month, depending on what sales I'd had)
- raised your own invoices, even using portal software
- you're demonstrably in business on your own account, having several clients, taking risk, buying equipment and business insurances

[Sky Rocket]

At risk if going off topic - But you could expand a little on this please?

Were SJD then still using the (in)famous Simon Dolan spreadsheet in that period? Were SJD using FreeAgent, Xero? Or an in house developed portal for contractors to use?

The only real MSC risk I can see here is if SJD were/are using a SJD developed custom portal.

Hope that helps.

Hey, for the time I was using them they had a spreadsheet that I used to fill out every quarter for them to calculate my VAT and then year end submissions. They did then develop an online portal, which was bloody awful. I couldn’t get on with it at all so continued to use the spreadsheet up until I left. My company was formally dissolved at the end of 2021.

I have massive sympathy for anyone caught up in this. Having been subject to the loan charge with that investigation still ongoing (9 years and counting) I’m not sure I’ve got the stomach for another one.

[GregRickshaw]

Was interested to read that HMRC have only won about 30% of their IR35 cases they've taken to tribunal. Shockingly low success rate for them. So yes agreed, I don't think this MSC action is an automatic guaranteed success for HMRC.

Surely you have a good case if you can demonstrate control of your business eg:

- you took advice from Boox/CK on most efficient salary and dividends and then sent an approval email back to say you accept or you want to tweak (you had to approve the amount you wanted to take in salary or dividends over the year via email with Boox)
- changed or overrode your agreed dividends settings throughout the year (I always changed mine in the portal each month, depending on what sales I'd had)
- raised your own invoices, even using portal software
- you're demonstrably in business on your own account, having several clients, taking risk, buying equipment and business insurances

We can demonstrate all of those things for those years, and I am expecting we may have to at some point.

Problem is once we have been branded, it will be a very tough battle.

And yes the IR35 rate is so low it's no surprise they are trying to get us this way instead.

[cojak]

Hi folks, I’ve been lurking on this thread for a while, whilst also doing some background research into this issue. In an effort to possibly provide some reassurance to those who are having a pretty dreadful time right now I suggest you read the following https://www.gov.uk/hmrc-internal-man...manual/esm3520.

This doc is helpful in that it lays out HMRC’s MSC logic which lines up with the FT article. I’m not saying I agree with their logic but it does elaborate their thinking on what they consider influence and or control and importantly what they don’t, which will hopefully dispel some of the incorrect assumptions I’ve read in this thread.

Early in the doc it states that HMRCs starting position is if your service provider is considered an MSCP then they will initially consider all associated contractors MSCs, however they also state

“Even where some client companies are Managed Service Companies because a MSC Provider (or their associate) is involved with those companies, it does not necessarily follow that all client companies are MSCs if the relationship between the MSC Provider/associate and their clients is demonstrably different.”

A key HMRC perspective on MSCP influence, is if the accountant advises on profit distribution the HMRC really don’t like this. It is silent about portals indicating control as far as I can see.

I hope that this will help, it helped me with the specifics of the HMRC’s logic even though I disagree with it.

I wish you all good luck and honestly believe this to be a speculative exercise by the HMRC that will fail.

Which is why I began with treating this as an IR35 investigation and telling people to gather all documentation and evidence of being IBOYOA - this still applies.

But the portal maybe the mechanism for pre-populating fields, thus giving automated advice - you are only thinking of a person giving that advice.

[jamesbrown]

Was interested to read that HMRC have only won about 30% of their IR35 cases they've taken to tribunal. Shockingly low success rate for them. So yes agreed, I don't think this MSC action is an automatic guaranteed success for HMRC.

Surely you have a good case if you can demonstrate control of your business eg:

- you took advice from Boox/CK on most efficient salary and dividends and then sent an approval email back to say you accept or you want to tweak (you had to approve the amount you wanted to take in salary or dividends over the year via email with Boox)
- changed or overrode your agreed dividends settings throughout the year (I always changed mine in the portal each month, depending on what sales I'd had)
- raised your own invoices, even using portal software
- you're demonstrably in business on your own account, having several clients, taking risk, buying equipment and business insurances

Yes, it will depend on the facts and, superficially, it doesn't seem like a strong case against CK, notwithstanding some circumstantial problems (poorly worded marketing, a dormant company rate, possibly some default assumptions made by the portal). However, if Boox were pre-populating salary and dividend amounts, that is really pushing it, especially if a majority of their clients went on to accept those default amounts. So each of these cases will be different and will/should turn on the facts, although it's also clear that neither of these outfits is remotely like CBS.

[tenten]

No, because that is what clause (2) of ITEPA Chapter 9 Part 2 is all about, the necessary/sufficient conditions for being "involved with" an MSC. An MSCP can also be an accountant, which muddies things (so it depends on the facts, but probably they will attempt to apply this to all clients who received a similar "solution" or "package" from the MSCP). In other words, the poster above who mentions an SJD spreadsheet probably would be safer than someone using their portal (based on the arguments that HMRC is currently making). Again, though, it's easy to get into the mindset of accepting the arguments that HMRC is making, but they routinely lose at tax tribunals.

Indeed. Amongst other things, the determination by HMRC on what they deem to qualify as providing "legal or accountancy services in a professional capacity" under the exemption in 61B(3) seems untested. I can't imagine the accountancy community or overjoyed at the line HMRC are taking here either.

In principle, I can see a good case against the 3 conditions of 61B(2) that CK & Boox are judged to have breached. But it has to be said that the wording really is abysmal. Controls or influences - how can anyone prove a decision was or was not influenced? If you are not at liberty to canvas professional advice for a risk of being "influenced", we really are through the looking glass.

Speaking of smashing through the looking glass into the jaw dropping shampoo world of our tax overlords..... and following on from the debate about custom platforms, could the same (ridiculous) accusations be levelled at banks providing accounts to PSCs - I expect that would fall under "facilitating the use of companies". Like the allegations against CK, the bank benefits from the recurring account tariffs, and like CK they influence the companies finances by locking them into a custom banking platform. Ditto the likes of QDOS: do they "facilitate" the use of a PSC? Probably. Do they benefit financially on an on-going basis.... they do. Do they influence the provision of services.... they do, via the valuable advice they provide. Do they undertake to make good any tax loss.... they do. Right, you are all MSCs. Pay up.

The last paragraph is obviously wild and laughable piffle that no reasonable person would buy. But is the logic really that dissimilar?

[superdoodle]

I guess pre-populating suggested figures based on a salary/income you'd told them you wanted to take. But that you could change/override in line with your own company performance.

It's a far cry from just sticking in some amounts with no discussion with the PSC and not allowing you to change it which is what CBS were doing.

The portal is to give you a snapshot of your business at any time. If anything it could be argued it gives you more control as you can see how the company is performing and what's possible to take out.