Churchill Knight & Boox clients being investigated as Managed Service Companies

[PurelyBlue]

My perspective on this is that HMRC's interpretation is hopelessly wrong, but I assume they just pulled it together so they could send out these letters now.

Contrast it with HMRC's own views expressed in ESM3520:

First activity - that of benefiting financially on an ongoing basis from the provision of the services of the individual who provides those services through a MSC. This recognises that fees charged to companies by professionals do not normally have regard to the ability of the workers in the company to generate income: the presumption is that if the company retains the services of a professional, fees will be paid. These will usually vary with the professional services provided and not in relation to the income/profits of the business. (However, see below: indicators of services that would constitute being involved in all circumstances: if the professional services provided are directly linked to the worker’s activity, then that would constitute benefiting financially on an ongoing basis from the provision of the services of the individual.)

Third activity - that of influencing or controlling the way in which payments to the worker or an associate are made. The company’s officers should determine how the company distributes its profits. The distribution of profits which conform to a standardised product over which in reality the worker as director has little to no control or influence, is an example of influence or control by the person providing that standardised product.

Fourth activity - that of influencing or controlling the company’s finances or any of its activities. A company’s officers should, independently of any external influence, determine how the company, as a separate legal entity, and its finances, are administered. Such decisions should have regard to all the relevant factors pertinent to the company and to the company officers’ legal obligations. Where there is no such independence, and that is not simply a matter of presenting illusions by some structural changes, HMRC’s view is that both the company and its finances are being influenced and controlled.

Further, note its section on the meaning of 'influences':

In this context, “influences” does not mean the provision of advice. The Financial Secretary to HM Treasury said in Parliament on 15 May 2007: “there is a distinct difference…..between a person who provides independent, tailored advice to a client, who is then able to consider that advice before accepting it or rejecting it, and the person who simply supplies a client with a standard solution or product that the client accepts.”

Read more here: https://www.gov.uk/hmrc-internal-man...manual/esm3520

[rabbleish]

What's troubling about this is, tell me anyone using an accountant where this doesn't hold? Short of everyone doing their own accounts, what else can you do?

Which is surely why the accountancy exemption is going to be a key part of the defence.

[GregRickshaw]

Here's the reasoning (almost entirely verbatim; I just shortened 'BOOX' company name) from HMRC's letter regarding why BOOX satisfies the conditions (a), (c) and (d) of Section 61B (2):



As a reminder, here are the conditions from the legislation:

• (a) Benefits financially on an ongoing basis from the provision of the services of the individual
• (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

There are some difference between the Boox wording and the CK wording though (in the determination letter). The 'caughts' are the same though a c and d

Condition a - H believes this is met as Churchill Knight has an annual fee that is broken down and collected over 12 months and that there is also a reduced fee for 'inactive companies'

Condition c - H believes this condition is met as CK provide each client company with a yearly statement showing them how much they are to receive and this is then divided by 12 and spread across the year. If the client company would like to change this, then they would have to contact CK

Condition d - H believes this condition is met through evidence gathered from speaking to client companies; it is apparent that they cannot operate without the portal as they do not pay themselves without checking/using the portal first. H contends that there is no independence from the portal and by extension CK and that the directors are not discharging their obligations without external influence.


Did anybody but me hear the words 'whistle blowers' in H capture of CK in condition d?

[GregRickshaw]

Here's the reasoning (almost entirely verbatim; I just shortened 'BOOX' company name) from HMRC's letter regarding why BOOX satisfies the conditions (a), (c) and (d) of Section 61B (2):



As a reminder, here are the conditions from the legislation:

• (a) Benefits financially on an ongoing basis from the provision of the services of the individual
• (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

My perspective on this is that HMRC's interpretation is hopelessly wrong, but I assume they just pulled it together so they could send out these letters now.

Contrast it with HMRC's own views expressed in ESM3520:



Further, note its section on the meaning of 'influences':



Read more here: https://www.gov.uk/hmrc-internal-man...manual/esm3520

The wording is very different to CK's letter. CK are still caught by a, c and d but HMRC have found it in very different ways.

Condition a - H believes this is met as CK has an annual fee that is broken down and collected over 12 month and that there is also a reduced fee for 'inactive' companies.

Condition c - H believes this condition is met as CK provide each client company with a yearly statement showing them how much they are to receive and this is then divided by 12 and spread across the year. If the client company would like to change this, then they would have to contact CK

Condition d - H believes this condition is met through evidence gathered from speaking to client companies; it is apparent that they cannot operate without the portal as they do not pay themselves without checking/using the portal first. H contends that there is no independence from the portal and by extension CK and that the directors are not discharging their obligations without external influence.

Does anyone else hear the words 'whistle and blower' in CK condition d capture?

And apart from a, are utter lies as to compared how I operated.

[jamesbrown]

Here's the reasoning (almost entirely verbatim; I just shortened 'BOOX' company name) from HMRC's letter regarding why BOOX satisfies the conditions (a), (c) and (d) of Section 61B (2):



As a reminder, here are the conditions from the legislation:

• (a) Benefits financially on an ongoing basis from the provision of the services of the individual
• (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

It is a fascinating, Noddy-like interpretation of the legislation that is almost certainly wrong, since it doesn't meet the bar of internal consistency (e.g., with clause 3, which is the accountant exemption clause and accountants clearly do not work without charging a fee). The point they are (presumably deliberately) missing about (2)(a) is the "from the provision of the services of the individual". It is fascinating how they connect that to their own statement regarding "customers must continue to pay regardless of whether they are receiving income".

In some ways, this is quite heartening, but they still have time to refine their arguments and it looks like Boox did engage in some dubious practices, quite apart from the clownshoe arguments that HMRC is currently advancing. Still, you never can tell with tribunals.

[tenten]

Here's the reasoning (almost entirely verbatim; I just shortened 'BOOX' company name) from HMRC's letter regarding why BOOX satisfies the conditions (a), (c) and (d) of Section 61B (2):



As a reminder, here are the conditions from the legislation:

• (a) Benefits financially on an ongoing basis from the provision of the services of the individual
• (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

Just wow. What an absolute riddy - it is definitely not a funny situation but I had to laugh reading this effort from HMRC.

To summarise: "Dear Boox client. We have decided Boox aren't our kinda accountant, so we are going to tenuously lassoo you to 61B2. You paid them for some stuff so obviously your wrong kinda of accountant benefited from you providing your services to third party clients - it was nothing to do with you running a Ltd co. You also received standard advice given by every accountant/tax book/tax website across the land, which definitely influenced you because nobody wants to be tax efficient unless enlightened by a wrong type of accountant. Ohh and you used an audited digital SaaS service for book keeping where you could only enter data in the provided form fields for your receipts that your wrong kinda accounted let you use so they were clearly in control of your business."

[PurelyBlue]

Interestingly, I wasn't yet a customer of BOOX during 17/18 tax year (of course this will be in my response), since I was still doing the accounting myself and was actually using HMRC's own payroll software during that year.

The only connection with BOOX for 17/18 was that I paid BOOX a fixed fee during the subsequent year (18/19) to produce my Companies House accounts and corporation tax return for 17/18.

So either HMRC look at who produced the accounts/return for 17/18 (even if the engagement started after the end of 17/18), or they just look for anyone who was a customer of BOOX in the 06/04/2017-05/04/2020 period (this is the period they state in their letter).

[jamesbrown]

I assume they just pulled it together so they could send out these letters now.

I think that's exactly right. These overtly simplistic arguments will probably not see the light of day at tribunal. I mean, it can be hoped, but...

[Fred Bloggs]

Interestingly, I wasn't yet a customer of BOOX during 17/18 tax year (of course this will be in my response), since I was still doing the accounting myself and was actually using HMRC's own payroll software during that year.

The only connection with BOOX for 17/18 was that I paid BOOX a fixed fee during the subsequent year (18/19) to produce my Companies House accounts and corporation tax return for 17/18.

So either HMRC look at who produced the accounts/return for 17/18 (even if the engagement started after the end of 17/18), or they just look for anyone who was a customer of BOOX in the 06/04/2017-05/04/2020 period (this is the period they state in their letter).

Very interesting. It's a scatter gun approach. If you were DIY then you weren't an MSC. Simples.

[difficulttimes]

Just been following this thread with interest and sorry to hear everyone who is mixed up in this mess.
My take is that CK and Boox must have been having conversations with HMRC for quite some time on this. I saw an earlier post that someone wasn't able to close their company in 2019 but I take it that both companies didn't share this with their clients until the letters were dropping. HMRC must have given them word that they were coming so they could inform their clients.

This has all the hallmarks of the Behaviour Insight team at HMRC so this must only be Phase 1 of their plan as they tend to play the long game. They are probably not happy that there are still outside gigs out there so we now go after their accountants and coerce their clients to switch to umbrella. It is a big step and an extra burden for most to do your own accounts and it looks like even if you were to use an accountant to do YE you will be sent a Reg 80 letter that will take years to resolve. Once word spreads watch everyone leave their accountants en-masse. But that creates another issue, if a discovery was raised on this then you need your Accountant to still be in business and only the ones that have an Umbrella arm would be able to survive. Unfortunately for contractors you could be left on your own - if their clients desert them how could an accountancy practice keep going. They need your fees to survive.
Lets hope the accountancy groups respond to this and it is a threat on their livelihood.