Churchill Knight & Boox clients being investigated as Managed Service Companies

[eek]

They could be chancing their arm. It wouldn't be the first time they've tried it on.

The trouble is, even if they've got a really flimsy case, they might still let it go to tribunal. It wouldn't be the first time they've done that either.

Hopefully CK go the distance, and don't leave clients high and dry like many firms have in the past.

This time round CK have skin in the game so it's not that easy for them to leave the clients high and dry...

[Fred Bloggs]

They could be chancing their arm. It wouldn't be the first time they've tried it on.

The trouble is, even if they've got a really flimsy case, they might still let it go to tribunal. It wouldn't be the first time they've done that either.

Hopefully CK go the distance, and don't leave clients high and dry like many firms have in the past.

Compared to a one person typical IR35 case, the tax at stake from several hundred (or even thousand?) caught Managed Service Company contractors at CK or at anyone else would be far higher. That's going to move the needle on the cost/benefit calculator. One case, hundreds/thousands caught. And if they were to win at CK, where next?

This is likely to run and run, I think. Very interesting.

[Fred Bloggs]

CK have confirmed they could be liable and face penalties too. On one hand it means we haven't been thrown to the wolves alone on the other Hector clearly smells blood here, the floodgates opening springs to mind.

Another couple of years of watching the letterbox is what it means for the contractors at the end of the food chain.

And I bet that given how long ago we are talking about, virtually nobody is going to have any tax investigation insurance to fall back on?

[jamesbrown]

Are HMRC using the MSC angle to avoid having to carry out individual IR35 investigations?

Well, the order of application of legislation is the agency legislation first, then the MSC legislation second, then the IR35 legislation third. So, yes, in the sense that the MSC legislation takes precedence over the IR35 legislation and IR35 is only considered where the MSC legislation does not apply. Obviously, with Chapter 8 of Part 2 of ITEPA (aka old IR35), you are looking contract-by-contract, so the finest resolution possible. An MSCP offering a solution to a bunch of MSCs is a very appealing prospect in that context.

However, if CK were really just offering accounting services at arms length, it seems unlikely that the MSC legislation would apply (indeed, it was explicitly envisaged not to apply in those circumstances). The client portal is an interesting angle and was always a bad idea for all sorts of reasons, but I wouldn't have put the MSC legislation among them. I suppose the angle here is "managing client company finances", but that sounds very tenuous unless they were directly making payments or doing something unusual that was unlike ordinary accounting services. Another interesting angle might be the tax loss insurance offered/promoted/pushed by some accountants w/r to IR35, which potentially makes the accountant "involved" with the MSC as defined in the MSC legislation.

[eek]

Well, the order of application of legislation is the agency legislation first, then the MSC legislation second, then the IR35 legislation third. So, yes, in the sense that the MSC legislation takes precedence over the IR35 legislation and IR35 is only considered where the MSC legislation does not apply. Obviously, with Chapter 8 of Part 2 of ITEPA (aka old IR35), you are looking contract-by-contract, so the finest resolution possible. An MSCP offering a solution to a bunch of MSCs is a very appealing prospect in that context.

However, if CK were really just offering accounting services at arms length, it seems unlikely that the MSC legislation would apply (indeed, it was explicitly envisaged not to apply in those circumstances). The client portal is an interesting angle and was always a bad idea for all sorts of reasons, but I wouldn't have put the MSC legislation among them. I suppose the angle here is "managing client company finances", but that sounds very tenuous unless they were directly making payments or doing something unusual that was unlike ordinary accounting services. Another interesting angle might be the tax loss insurance offered/promoted/pushed by some accountants w/r to IR35, which potentially makes the accountant "involved" with the MSC as defined in the MSC legislation.

I'm looking at the timing and wondering if the issues comes from payroll and that CK may have done something like automatically generate payslips and RTI submissions rather than responding to a button being pressed.

Mind you we are all trying to guess the mindset of some random people in HMRC tasked on finding a pile of money from a stone - the logic they will be using may be very tenuous although that won't help the people involved nor given how tax tribunals work and the people who sit on them offer them much hope that common sense prevails (sorry Greg).

[jamesbrown]

I'm looking at the timing and wondering if the issues comes from payroll and that CK may have done something like automatically generate payslips and RTI submissions rather than responding to a button being pressed.

Mind you we are all trying to guess the mindset of some random people in HMRC tasked on finding a pile of money from a stone - the logic they will be using may be very tenuous although that won't help the people involved nor given how tax tribunals work and the people who sit on them offer them much hope that common sense prevails (sorry Greg).

Yes, watching with "interest", I suppose. At face value, it seems odd, but perhaps there is something under the hood. Generally speaking, the point at which an accountancy practice crosses a line into MSCP and the further line at which the MSCP becomes "involved" with the MSC is a bit murky, so I suppose I can see why it is being probed. I expect some other accounting practices are watching this with interest too and wondering why they didn't ditch their crappy portal software long ago. Again, I know several that push tax loss insurance, which is probably a bad idea in this context too.

[eek]

I do think it comes down to the portal. Take for example processing invoices and timesheets - the process is likely to be 100% identical to how CK’s umbrella does it because so I suspect they use identical pages and backend code.

[mudskipper]

I'd hope your tax investigation insurance would cover this. Have asked on the ipse forum for confirmation.

Anyone know if closing your company (something I'm intending to do later this year) protects against this sort of crap (if HMRC do widen the net)?

[jamesbrown]

There are a lot of useful hints in this ESM about areas of possible focus:

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

Preparation of invoices is potentially one of them, along with expenses, but it depends on the details of what went on and the extent to which you were (or were not) in control of them.

Again, there are two bars to jump here. One, that CK was a MSCP. Two, that it was "involved" with the client MSCs.

[jamesbrown]

In my estimation, the third, fourth and fifth items in that ESM are most likely to be under scrutiny.