Churchill Knight & Boox clients being investigated as Managed Service Companies

[mudskipper]

The initial appeal - which has to be done within 30 days and with a deadline that is rapidly approaching...

Now after the initial appeal there is nothing that will probably need to be done for years but this is clearly a tax investigation of the tax affairs of the company and the contractor so....

Well the blog post https://www.ipse.co.uk/ipse-news/ips...scps-hmrc.html gives an email address for members to email if affected - I'd be very surprised if there was no support available for an appeal, but I guess we'd need Isa..ac to clarify what he asked for and what was refused.

[GregRickshaw]

The initial appeal - which has to be done within 30 days and with a deadline that is rapidly approaching...

Remember too the 30 days is from when the letter was issued, NOT when you received it/found it etc., So if you have premises, rented offices, workspaces etc., and you don't go there anymore etc., the deadline could have already passed. The April 5th deadline will not save you IF the letter has been issued.

There have been many CK clients who never received a letter physical but are on the list of letters issued....

Not sure why anyone would be excluded but that is a whole other story.

[ubertax]

I received a letter this morning from HMRC so I’m learning all about this double quick!

Strangely I have been notified as a client of Churchill Knight?? I’d never heard of them before today. I have only ever used Boox, and closed the company in 2020 anyway.

Can anyone explain why HMRC think I’m a client of CK?? From all my research there is no connection between boox and CK.

is this a HMRC cock up I could use in my appeal?

[tenten]

Agree with the above - I would be very surprised if the likes of IPSE/QDOS/FSB are not supporting their clients at least with the initial appeal/dispute and most likely beyond.

The dates on the Costelloe case are staggering. The investigation first started in 2009 and it took 10 years to go through the FTT, UTT, CA. Going by the FTT facts, they had circa 1,000 PSCs - I can imagine that was a huge a burden on both Costelloe and the investigation team.

I have seen it suggested that the CK investigation started 3 years ago and the press coverage has also intimated that CK have approx 1,000 contractors impacted. I do not know if either of these data points are accurate. Does anyone? Needless to say, I hope there isn't a 10 year marathon for folks impacted to endure.

Also, the FT article says:

First, it [CK] “benefits financially” from the provision of services by contractors by charging a yearly fee. Second, it[CK] “influences or controls” how they received payments by issuing a yearly statement of how much individuals would receive from their company and dividing and spreading this over 12 months. People could only change this by contacting the firm, HMRC said. Finally, HMRC said Churchill Knight & Associates “influences or controls” the finances and activities of contractors’ businesses by requiring them to use an online portal the firm developed and that there is “no independence from the portal”

Is that the guts of HMRCs claims in their correspondence to both CK and the PSCs @Greg? It has been well covered already on here but points 1 and 3 seem very weak to me. The second point might be the most vulnerable.

Again, I remain surprised at the lack of commentary / coverage / responses to HMRC making any reference to the accountancy/legal services exemption in 61B 3. What am I missing? Are they guarding that for later, or, have they conceded they were providing more than accountancy & legal services?

[GregRickshaw]

Agree with the above - I would be very surprised if the likes of IPSE/QDOS/FSB are not supporting their clients at least with the initial appeal/dispute and most likely beyond.

The dates on the Costelloe case are staggering. The investigation first started in 2009 and it took 10 years to go through the FTT, UTT, CA. Going by the FTT facts, they had circa 1,000 PSCs - I can imagine that was a huge a burden on both Costelloe and the investigation team.

I have seen it suggested that the CK investigation started 3 years ago and the press coverage has also intimated that CK have approx 1,000 contractors impacted. I do not know if either of these data points are accurate. Does anyone? Needless to say, I hope there isn't a 10 year marathon for folks impacted to endure.

Also, the FT article says:

First, it [CK] “benefits financially” from the provision of services by contractors by charging a yearly fee. Second, it[CK] “influences or controls” how they received payments by issuing a yearly statement of how much individuals would receive from their company and dividing and spreading this over 12 months. People could only change this by contacting the firm, HMRC said. Finally, HMRC said Churchill Knight & Associates “influences or controls” the finances and activities of contractors’ businesses by requiring them to use an online portal the firm developed and that there is “no independence from the portal”

Is that the guts of HMRCs claims in their correspondence to both CK and the PSCs @Greg? It has been well covered already on here but points 1 and 3 seem very weak to me. The second point might be the most vulnerable.

Again, I remain surprised at the lack of commentary / coverage / responses to HMRC making any reference to the accountancy/legal services exemption in 61B 3. What am I missing? Are they guarding that for later, or, have they conceded they were providing more than accountancy & legal services?

I will state again I can't see how CK can possibly win, HMRC have 'tested' five factors and CK have been caught in the test on three of them. How they can fight all three seems nigh on impossible.

One of the three being the infamous fees with reduced fees for dormant companies, every time I look at it I just can't see how CK could argue it, and if one is enough to break the legislation then I just don't know what they could be challenging about it.

Point two CK did until around 2012/13 so HMRC could well argue CK influenced 'by guidance' though whether it was within accountancy practice I have no idea . Then they changed their model to asking how much you thought (estimated) you would earn/pay send dividend for the next financial year etc., So why HMRC are still poking that hole I have no idea.

We had full autonomy of salary/dividends, banks used etc., after about 2013, you chose your VAT model, I used them purely for VAT/CT/Year end books etc.,

Something CK and Boox did has upset HMRC clearly and it may be the Costello case which honed their skills on this case.

What I am wondering is whether HRMC have been selective in the letters, which (if true) we can only imagine some kind of whistle-blowing has gone on.

One thing for sure it won't take 10 years to get this one done and dusted

[jofo]

Just joined this site and forum as I am likely caught up with this. I am with Boox, and they have told me that I am on HMRC's list to be investigated. I haven't received an official letter as yet but I am doing all the prep for my appeal just as if one had arrived.

There are a lot of posts on this thread but I don’t think anybody has yet talked about clauses 61B (1)(b) and 61B (1)(c) in the legislation, and using them as part of the appeal. They weren’t mentioned in the draft appeals letter provided by Boox.

To me they look like they could provide a strong defence for the PSC company even if the accountancy is found to be eventually “controlling” it and re-classed as an MSC Provider.

For background, the clauses state this:

(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,

(c) the way in which those payments are made would result in the individual (or associates) receiving payments of an amount (net of tax and national insurance) exceeding that which would be received (net of tax and national insurance) if every payment in respect of the services were employment income of the individual, and

If I have interpreted these correctly, these are in effect a test on whether the individual has personally benefited from the arrangement.

As clause 61B (1)(c) is AND’d with 61B (1)(d) – the “involved or controlling” clause, I think this means that your PSC can only be re-classed as an MSC if both parts are true.

I think this make sense from a legal prospective, and provides some level of protection for those that have inadvertently ended up being involved with a MSC Provider. It would be very odd to have a law that penalises you, even if you haven’t done anything wrong or benefited from the situation.

So you might want to check and compare your “net income” for 17/18 (as declared on your self-assessment) with the “net income” that you would have received if classed as an MSC. You may be pleasantly surprised. When I ran through the calculations, i found that my “net income” for 17/18 was lower than that if I was re-classed as an MSC.

Note: I used the calculation for the “deemed employment payment” as outlined in 61E. https://www.legislation.gov.uk/ukpga/2003/1/section/61E

The MSC legislation appears to be all about maximising PAYE tax and national insurance contributions rather than minimising net income. So some weird logic comes into play when you do the comparison. It heavily depends on how you have run the company.

The ironic thing is during 17/18, I incurred a lot of genuine business expenses working away from home on “outside IR35” contracts, which reduced my profit, corporation tax etc and ultimately lowered my net income.

To me, it looks like if you’ve operated as a genuine PSC Ltd company, held back money for a rainy day and not over exploited it, there may be a route out of this mess that doesn’t depend on the battle between HMRC and the accountancy firms.

On the mess itself, personally, I don’t think HMRC would have made such a big move unless it was very confident it could win or come out of it with the law further tightened. In the case of Boox, I suspect they will claim that the default behaviour of their portal w.r.t. the pay breakdown functionality was directly “influencing & controlling” the individual to take all their excess profits as dividends. If they can prove that point, then convince the judges that they have overstepped the line and no longer acting in a purest professional accountancy capacity, as per clause 61B (3), things might start to unravel from there. Clause 61B (4) would also unravel because of clause 61B (5)(a). Feels like it is going to be a long drawn out hard battle over this one.

Anyway, I am going to get the legal stuff & net income calculation professionally & independently checked out early next week. It has given me a little bit of hope after a very stressful week.

[tenten]

I will state again I can't see how CK can possibly win, HMRC have 'tested' five factors and CK have been caught in the test on three of them. How they can fight all three seems nigh on impossible.

Sorry Greg I wasn't looking to make you repeat yourself (I have read your previous posts) - I didn't word my question well. I was curious to know if what HMRC told the FT aligned exactly with the correspondence you have seen from CK and HMRC. It is not always obvious in a forum post what is a fact versus speculation overlaid on a fact. For example, it maybe a fact that HMRC have said in the notice letters (like they said in the FT) that because any fee is paid for services, it is sufficient for CK to fall foul if the first test...... but this forum is perhaps making assumptions around that such as the suggestion about the reduced fee.

Do you know when the CK investigation first started and have they indicated how many of their clients are impacted?

[SwissSaffa]

Hi, any recommendations for a good tax expert please. I received the letter last Friday and not sure what to do ? Has anyone tried to generate CK appeal letter?

qdos

[SwissSaffa]

Any other accounting firms with large numbers of outside-IR35 contractors should be on their guard.

boox. No one is talking about boox who has a bigger client base. They emailed us on Friday

[GregRickshaw]

Sorry Greg I wasn't looking to make you repeat yourself (I have read your previous posts) - I didn't word my question well. I was curious to know if what HMRC told the FT aligned exactly with the correspondence you have seen from CK and HMRC. It is not always obvious in a forum post what is a fact versus speculation overlaid on a fact. For example, it maybe a fact that HMRC have said in the notice letters (like they said in the FT) that because any fee is paid for services, it is sufficient for CK to fall foul if the first test...... but this forum is perhaps making assumptions around that such as the suggestion about the reduced fee.

Do you know when the CK investigation first started and have they indicated how many of their clients are impacted?

Sorry yes I wasn't getting annoyed at all especially with you.

Having now read the article, I had to go out and buy the newspaper. It does align exactly with what we know so far... on my part there is no assumption around the fee thing, we paid CK over 12 months a fee for their services, there is a reduced charge for dormant companies.

I never understood why CK were so expensive for the little they did, they did it efficiently, which was, as I now know vanilla bookkeeping for me. I know they never advised me anything after 2013 which is evident by the amounts I paid myself since being not exactly tax efficient ending up with a big extra tax on a DL!! How that does not prove autonomy of CK I do not know. However as individuals we are not being tested, CK have and we have the liabilities.

Maybe other clients did use all the services. So you can see why HMRC think they can win as why would there be such a big charge for doing nothing more than filing VAT/CT and filing end of year books.

You may be right we are focusing too much on the whole fee thing but I am only going on what is written in the letters failing the monthly fee thing is enough to have broken the legislation.

Three years figures was given to someone pretty trustworthy who are able to investigate things better than I can.

Though, pure speculation/assumption on my part is , it could be it started 10 years ago though when they CK stopped doing things like advising us the most tax efficient way to pay ourselves etc., I remember thinking at the time 'I wonder what the panic is'?

Would tie in with the Costello time frame and with the overnight change to how CK did things..