Churchill Knight & Boox clients being investigated as Managed Service Companies

[jamesbrown]

So I'm assuming then we can't take into account the 5% for expenses? Surely, the fee's we've paid Boox are deductible at the very least?

Right. No to accounting fees either. The argument being that, were it not for the MSCP, your income would've been taxed upfront as income from employment (and any payments you chose to make afterwards, post-tax). HMRC's estimate of the liability is unsurprisingly a bit crap at this stage, but it's amusing that they plugged the turnover into a Chapter 8 IR35 calculator as they seem to have done.

[dochkaian]

Right. No to accounting fees either. The argument being that, were it not for the MSCP, your income would've been taxed upfront as income from employment (and any payments you chose to make afterwards, post-tax). HMRC's estimate of the liability is unsurprisingly a bit crap at this stage, but it's amusing that they plugged the turnover into a Chapter 8 IR35 calculator as they seem to have done.

It will be interesting to see what the HMRC calculations for liability come back as.

[dochkaian]

A quick question, how many of you have received your Regulation 80 determinations from Boox for 2018/19 and 2019/2020? I've sent repeated requests to Boox, but no response either way.

I have to appeal the NI demand in the coming two weeks and would like to combine it with the PAYE determinations.

[GregRickshaw]

A quick question, how many of you have received your Regulation 80 determinations from Boox for 2018/19 and 2019/2020? I've sent repeated requests to Boox, but no response either way.

I have to appeal the NI demand in the coming two weeks and would like to combine it with the PAYE determinations.

Don't forget it's not received date which is the deadline it's the issued date, if you believe you should be getting them... then chase Boox hard. I have read with wide eyes on here Boox clients not getting their determination delivered to them until about 8 months after issue!

[GregRickshaw]

It will be interesting to see what the HMRC calculations for liability come back as.

My suspicions is HMRC won't tell you the full liability until it's a liability (i.e after they win the cases) for peace of mind use the spreadsheets (mentioned up there) and your best endeavours, then as long as you have put your appeals for everything to be stood over, go and get on with your life, this is likely to run until 2030 before it's totally over one way or the other

[jofo]

Is there an argument to be had that the "deemed employment payment" occurs at the point when a payment is received by the worker from the MSC, rather than when the end client pays the MSC for the services.

The wording in the legislation and examples in the Employment Status Manual seem to suggest that this is the case.

If you compare it with wording of "deemed employment payment" under the IR35 chapters, which specifically calls out the payments between the client and the intermediate, it looks different.

If this was the case, then the liability would be calculated on the payments that the worker actually received rather than the revenue of the company. This would allow any remaining money not distributed to worker to be available to satisfy the PAYE/NI liability, like any normal company.

Isn't effectively the MSC legislation saying that we should be treated as an employee of the MSC and not as a shareholder. Whereas IR35 legislation is saying we should be treated as an employee of the client.

Surely, for the whole company revenue to be classed as employment income, they would need to prove the contract(s) was inside IR35.

Maybe it is just wishful thinking on my part. I can't get my head around having to pay PAYE/NI on earnings that I haven't or may never personally receive.

[DealorNoDeal]

If you look at the "schemes" which were around in the early 2000s, which precipitated the MSC legislation, all the money coming in every week/month was immediately paid out to the contractor. No money was retained in the companies, and the contractor wouldn't have wanted this because the companies were controlled by someone else ie. the "scheme" provider. This was the case with CBS who managed the PSCs and controlled the money.

I've not looked at the MSC legislation but it wouldn't surprise me if it was never envisaged that not all money coming in would be paid out, and that money could be retained in the company.

jamesbrown might have a better handle on this.

[jamesbrown]

That's a good question, which prompted me to look at the legislation again.

It begins from this:

61E Calculation of deemed employment payment


(1)The amount of the deemed employment payment is the amount resulting from the following steps—

Step 1

Find (applying section 61F) the amount of the payment or benefit mentioned in section 61D(1)(b).

And 61D(1)(b) says this:

(b)the worker, or an associate of the worker, receives (from any person) a payment or benefit which can reasonably be taken to be in respect of the services, and

Which basically means, it doesn't matter how the payment was received and whether it took a circuitous route to the worker.

And 61D(1)(c) further says this:

(c)the payment or benefit is not earnings (within Chapter 1 of Part 3) received by the worker directly from the MSC.

Which is a reference to earnings in this context:

https://www.legislation.gov.uk/ukpga...art/3/chapter/

In other words, to simplify, the amount received by the worker that was not paid out as salary (subject to PAYE and NICs).

Further, 61F(5)(a) says:

(5)A payment or benefit is treated as received—

(a)in the case of a payment or cash benefit, when payment is made of or on account of the payment or benefit;

Bottom line, this reads to me as the total amount paid to the worker that was not treated as salary on the date the payment was made to the worker. That is the starting point for the deemed employment payment and, hence, any taxes due.

So, again, good question and I think it's probably true that the total amount invoiced is the absolute worst case scenario (ignoring interest etc.). The situation is better when the amount paid to the worker, whether as dividends or expenses or some other non-cash benefits, is between 50% (the minimum amount under 61B(1)(b)) and <100% of the amount invoiced.

Which is interesting, actually, because most of the secondary material I've read about this says that the taxable amount is with respect to the total invoiced. Also, it seems that HMRC's initial estimates are based on the total invoiced (but, as discussed above, that doesn't necessarily mean much and they will probably start with the worst case scenario, absent further information). Also, I think there is some symmetry here for reasons DealorNoDeal mentioned, plus the existence of 61B(1)(b), which is there as a rudimentary safeguard.

[jamesbrown]

However, I could be wrong. I have some practice reading legislation, but I am a contractor, just like the rest of you. It would be good to get some truly expert opinion on this one (although I say that noting that Chapter 9 hasn't received the same level of scrutiny in our community until recently, so it isn't very well understood by the usual suspects).

[jimmyoyang]

The above is a great point. We could assume the worst, by making the calculation on invoices billed / company turnover.

Though I have always wondered why the amount physically taken (dividend and salary) wasn’t the figure we would base the income tax on. There is also a great point about retained profits which I presume most had, as I sure did.

The question then would be about corporation tax, which we are trying to claim back or use as a deduction from the said liable figure. So, will the retained profit be due CT? Then the overall liable figure might still be fairly similar to before.

either way… super messy.

A general question to all… If I was to get a professional assessment from, say, David Kirk who charges £350+vat for a breakdown. Will that figure be 100% accurate? It’s just that there seems to be so many conflicting ways to calculate this and as it stands I either owe £50K or £100K. The discrepancy is scary and life changing for me.