Churchill Knight & Boox clients being investigated as Managed Service Companies

[Guy Incognito]

This might be another reason why HMRC won't let CK clients settle at the moment; they know the figures on the assessments are just guesstimates.

If they are estimates I am told they should be marked with an E. Mine is not.

[Sijo]

It looks like there is an E Infront of my figures in the notice. I was wondering what it was.

[jamesbrown]

Not really - HMRC could have used the approach in Chapter 9 (rather than the IR35 Chapter 8 / 10 approaches) because of the way CBS worked with all money being made available when the worker was paid (x was sent as salary, the rest was sat in a card account waiting to be spent). Remember this scheme in ancient history before the introduction of the dividend tax so CBS could be more blaise than you are need to be now.

So while I can follow jamesbrown 's logic about how to do the calculation I can see why WTT are more hesitant about answering the question because the actual law, tax manuals and statements from HMRC don't provide a consistent answer nor a working solution given the vast widening of what's caught by the MSC legislation..

And 1 possible mitigation option would be to get a tribunal to confirm what set of calculations need to be used to calculate what money is subject to income tax.

One way or another, WTT is wrong because they described the situation both as equivalent to IR35 and applying to payments made. It’s also telling that they didn’t answer my question, provided in good time (and they spent a lot of time answering questions).

That said, the legislation takes priority over any internal manual and, while it is phrased in terms of payments or benefits received, it is also phrased in terms of those payments or benefits as they would’ve been made had the individual been an employee of the MSC.

Remember, the purpose of Chapters 8, 10 and 9 alike is to look through any intermediary for tax purposes, which implies a tax treatment that ignores the intermediary and has an effect akin to the worker receiving earnings from an employment. The alternative would be surprising because the order of application is MSC then IR35, so you cannot have both and moneyboxing would then be a completely viable strategy against the MSC legislation (and IR35 in turn when the former was applied, due to ordering). That said, there are some differences in the deemed payment procedures between Chapter 8 and 9, which I wasn’t expecting, and the situation in Chapter 8 is far more clearcut as starting with the income of the intermediary and not the individual.

[Hareforthebear]

My letter states ‘as PSC is an MSC, all payments made by PSC to individual are treated as employment income on which PAYE & NI should be applied’. (Paraphrased)

My determination does not have an E but it does say in body of letter the amount has been calculated using ‘best judgment’ and may change as more facts and info are gathered, before saying if the fact finding process shows the MSC legislation does not apply, the determination will be reduced to nil.

There is also a section flagging up about potential NI liability too. In there it says if you need a detailed breakdown about tax and NI liability then they can issue these calculations. ‘However, they are only indicative and likely to change as more facts are gathered and they ‘establish the correct position’.

Make of that what you will. To me it seems like they don’t have a bloody clue.

[DealorNoDeal]

That said, the legislation takes priority over any internal manual and, while it is phrased in terms of payments or benefits received, it is also phrased in terms of those payments or benefits as they would’ve been made had the individual been an employee of the MSC.

Presumably the individual will also be liable for the employer's NICs of the MSC?

Hopefully they will credit the tax/NICs already paid, although what about CT?

[jamesbrown]

Presumably the individual will also be liable for the employer's NICs of the MSC?

Hopefully they will credit the tax/NICs already paid, although what about CT?

Yes. As to credits, yes for dividend taxes paid, no to CT paid, by default (you may get a credit in the end, but that won't be HMRC's position). This is also connected to how any liability is computed, i.e., whether it is on the payments made to the intermediary or to the individual.

[Guy Incognito]

In the WTT article on this site they say.


"all sums passing through the PSC to the contactor (sic) will be taxed as though they were employment income, i.e. will be subject to tax and NIC. In practical terms this means the dividends are reclassified"

Is HMRC accusing you of being a Managed Service Company? Control will be the key (contractoruk.com)

The letters from HMRC say they have used ESM3535.

The starting point for working out the deemed payment is the amount received by the worker in respect of services provided by the worker via the MSC and which are not earnings received by the worker directly from the MSC.

I take this to mean Dividends. I may be wrong.

I guess this could change, but for now I think it is payments not turnover.

[malvolio]

In the WTT article on this site they say.


"all sums passing through the PSC to the contactor (sic) will be taxed as though they were employment income, i.e. will be subject to tax and NIC. In practical terms this means the dividends are reclassified"

Is HMRC accusing you of being a Managed Service Company? Control will be the key (contractoruk.com)

The letters from HMRC say they have used ESM3535.

The starting point for working out the deemed payment is the amount received by the worker in respect of services provided by the worker via the MSC and which are not earnings received by the worker directly from the MSC.

I take this to mean Dividends. I may be wrong.

I guess this could change, but for now I think it is payments not turnover.

Of course it does. The whole point of the old MSC was that you had what was in effect a virtual company over which you had little control, but received dividends as a shareholder reflecting your varying earnings month-by-month. so naturally HMRC are looking through that arrangement and deciding that any money you receive personally is actually taxable salary, regardless of any supporting documentation. The old "if it quacks like a duck" argument.

The challenge is determining who are/were the MSC providers in a very confused marketplace.

[jamesbrown]

The IPSE guide is here, fwiw:

https://www.ipse.co.uk/member-benefi...ion-guide.html

[nekro]

ContractorCalculator have teamed up with David Kirk & Co Limited and formed an MSC Survivors Group with the intention of having a co-ordinated strategy to defend this case for both Boox and Churchill Knight clients:

https://www.contractorcalculator.co....ors_group.aspx

They did a a webinar today. To join the group and have them represent you for the appeal is £175 + VAT.

Did anyone else here watch their presentation and have any comments?