Churchill Knight & Boox clients being investigated as Managed Service Companies

[Guy Incognito]

Irrelevant as we are talking about historic years and you can't back date pension contributions..

Sorry, I don't think I understand your answer. Let me re-phrase my question.

Are Director Pension Contributions made by the company in 2017/18 considered to be a 'payment to the individual?'.

If so, does this mean they will be included in the 'Pay for which tax remains unpaid' in the determination?

[eek]

Sorry, I don't think I understand your answer. Let me re-phrase my question.

Are Director Pension Contributions made by the company in 2017/18 considered to be a 'payment to the individual?'.

If so, does this mean they will be included in the 'Pay for which tax remains unpaid' in the determination?

Nope - it's a payment into a pension fund.

My point was that you can't (as you could with the loan charge) avoid some tax by throwing a large lump sum into your pension pot.

[Fred Bloggs]

Sorry, I don't think I understand your answer. Let me re-phrase my question.

Are Director Pension Contributions made by the company in 2017/18 considered to be a 'payment to the individual?'.

If so, does this mean they will be included in the 'Pay for which tax remains unpaid' in the determination?

Pension contributions are just about the only thing that puts the money beyond the reach of HMRC. But you cannot pay today into previous years pensions. You can bring forward three years unused pension contribution allowance but that's not the same thing.

[Fred Bloggs]

I have received conflicting advice regarding whether pension contributions count as 'payment to the individual'.

I believe the relevant legislation is Section 61B of Income Tax (Earnings and Pensions) Act 2003.

61B Meaning of “managed service company”

(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,


Can you explain your reasons for stating that "pension contributions in the year ... escape retrospective taxation"?

Pension contributions aren't your money any more. The money is held by pension trustees for you as a beneficiary. Pension money is one of the very few things that Hector doesn't get to touch.

[Fred Bloggs]

That sounds right to me - they are explicitly looking at the dividend payments and saying that NI and full income tax should have been paid on those payments.

It's awful, the insidious taxes that the UK levies on wages. ERNIC, EENIC, apprenticeship levy and income tax. We're being taxed to oblivion. Not to mention penalties for late payment on top.

[jamesbrown]

That sounds right to me - they are explicitly looking at the dividend payments and saying that NI and full income tax should have been paid on those payments.

That isn't how the deemed payment works for IR35, which is explained here:

https://www.gov.uk/guidance/how-to-c...oyment-payment

You start the deemed employment calculation by taking the income the intermediary has received (including non-cash benefits) from off-payroll engagements in the tax year.

My emphasis.

They also mentioned during that webinar that the deemed payment process was the same for IR35 and MSC, but I haven't bothered to check yet. Either way, one of those two things is wrong.

[frz78]

It's awful, the insidious taxes that the UK levies on wages. ERNIC, EENIC, apprenticeship levy and income tax. We're being taxed to oblivion. Not to mention penalties for late payment on top.

i believe the term is 'mugged off'

[eek]

That isn't how the deemed payment works for IR35, which is explained here:

https://www.gov.uk/guidance/how-to-c...oyment-payment



My emphasis.

They also mentioned during that webinar that the deemed payment process was the same for IR35 and MSC, but I haven't bothered to check yet. Either way, one of those two things is wrong.

the MSC legislation seems to say the same Managed Service Company legislation: unpaid PAYE and Class 1 National Insurance contributions avoidance schemes (Spotlight 32) - GOV.UK (www.gov.uk)

Where a company is set up to provide a worker’s services to an engager and the MSC legislation applies, amounts paid to an MSC for those services that are not already subject to PAYE Income Tax and Class 1 National Insurance contributions (for example, share dividends), are treated as employment income.

so yes it would seem to be the same as an IR35 investigation.

[jamesbrown]

Right. Perhaps WTT didn't really communicate this point as they intended, but there was an explicit question about it and I am pretty certain I am reporting what they said accurately because the question was an either/or (either it is on all income paid to the intermediary or it is on all income paid to the individual). It would be pretty lenient to be the latter, since you could basically retain most/all profit and then what? Pay it out in future years, say 5 or 10 years later or on liquidation?

[eek]

Right. Perhaps WTT didn't really communicate this point as they intended, but there was an explicit question about it and I am pretty certain I am reporting what they said accurately because the question was an either/or (either it is on all income paid to the intermediary or it is on all income paid to the individual). It would be pretty lenient to be the latter, since you could basically retain most/all profit and then what? Pay it out in future years, say 5 or 10 years later or on liquidation?

I went searching for the actual act but I can't find it.

What I did find is a Parliamentary briefing paper from April 2020 that makes interesting reading for anyone interested Managed service companies (parliament.uk)

Note - if the flowchart at the end represents the law HMRC hasn't got a leg to stand on so I don't think the MSC flowchart shown is the one HMRC are working with.