Churchill Knight & Boox clients being investigated as Managed Service Companies

[Guy Incognito]

personally I’d say 85K. Specifically with respect to the deemed payment the legislation talks about including non cash benefits.

if the Ltd that you own is now worth 15k more, presumably that would be included?

The shareholders own the company.

[DealorNoDeal]

I suppose we could always ask HMRC.

[Guy Incognito]

I hope HMRC are ready for every single one of us to go to FTT after the lead cases.

My numbers are looking so bad I'm thinking about putting £25k to one side for legal fees.

[jamesbrown]

So the question is - are the retained profits in your company a non cash benefit?

There are many edge cases in all of this, but I cannot see that being one of them. There is no benefit received by the worker that could reasonably be taken as earnings from employment as a result of that worker merely being a shareholder. The benefit would be received on a dividend payment.

An example of an edge case that would be a problem is a director's loan because the legislation is clear that it doesn't matter how the payment is made or labelled.

[jamesbrown]

Another edge case is the following. For the period under investigation, the MSC may pay out less than 50% of the fees to the worker(s). However, the goal, presumably, is that the remaining amounts are paid out eventually. At that point, the PSC may become an MSC if all other conditions are met because there is no particular timeframe in the legislation over which the qualifying conditions must be met. Thus, any payment made later on, including a payment made on winding up, would potentially trigger the legislation if 61B(1)(b) was the only condition not met previously.

[GregRickshaw]

There are many edge cases in all of this, but I cannot see that being one of them. There is no benefit received by the worker that could reasonably be taken as earnings from employment as a result of that worker merely being a shareholder. The benefit would be received on a dividend payment.

An example of an edge case that would be a problem is a director's loan because the legislation is clear that it doesn't matter how the payment is made or labelled.

You could argue though having a directors loan proves there was no P involved in the running of the LTD, especially considering how HMRC are convinced CK and Boox told the companies how much exactly to pay themselves, were in charge of paying the individuals and generally totally involved. I can't see any accountant saying 'yeah pay yourself 20,000 extra' ....

[Guy Incognito]

Another edge case is the following. For the period under investigation, the MSC may pay out less than 50% of the fees to the worker(s). However, the goal, presumably, is that the remaining amounts are paid out eventually. At that point, the PSC may become an MSC if all other conditions are met because there is no particular timeframe in the legislation over which the qualifying conditions must be met. Thus, any payment made later on, including a payment made on winding up, would potentially trigger the legislation if 61B(1)(b) was the only condition not met previously.

That would mean you can now start retaining profits to get your numbers below 50% if they are currently above. Then when you appeal you get off under the less than half rule.

[jamesbrown]

You could argue though having a directors loan proves there was no P involved in the running of the LTD, especially considering how HMRC are convinced CK and Boox told the companies how much exactly to pay themselves, were in charge of paying the individuals and generally totally involved. I can't see any accountant saying 'yeah pay yourself 20,000 extra' ....

You could try, I suppose, but I think a DL would be treated as earnings from employment, just because the legislation is so clear that the method/mode of payment doesn't make any difference (and I don't think any in-business factors on their own would get you off, post CBS - in fact, post CBS, the needle was moved more towards just having an accountant, since the "accountant exemption" isn't, in fact, an exemption, it's rather that having an accountant means that you are not automatically caught. i.e., meaningless).

[jamesbrown]

That would mean you can now start retaining profits to get your numbers below 50% if they are currently above. Then when you appeal you get off under the less than half rule.

I don't think it means that (at least, that isn't what I was trying to communicate). If you read 61B(1)(b) it says this:

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,

In other words, there remains a clear connection between the payment and the services provided. However, if those services led to retained profits, then I don't see anything that indicates a payment made to the worker much later on from those retained profits couldn't trigger 61B(1)(b). Again, though, I'm not certain, this is just my reading of what might be an edge case/risk because the legislation is silent about the period over which these tests should be met and the ESM just indicates an extended period (not that you can fully trust the ESM w/r to avoidance).

[jamesbrown]

FWIW, here's some relevant commentary from croner-i on the qualifying conditions, although this was written pre-CoA.

The points (a) through (c) and "fourth" correspond to 61B(1)(a) through (d), respectively.

Point (a) in 9.2.4 will include all companies in the world of intermediaries, unless they follow the ‘main contractor’ model (see 8.8), in which case it will not be the services of individuals that they are providing but building services, or medical services, or IT services, or the services of whatever industry they are in. Note also that ‘an individual’ can be expected to include the plural: someone who provides the services of two individuals is providing the services of each one. This is consonant with the intentions of the legislation.

Point (b) applies when the individual performing the services gets more than 50% (‘the greater part’) of what the company gets. Again, this will almost always be the case: one conjures up an image of an avoidance scheme whereby the company only pays out 49% and the rest is rolled up ready for the individual to receive later (when some other MSC condition is not fulfilled) or on a winding-up. This is unlikely to be a commercial success. However, the word ‘payment’ only means cash payments: a company will not be an MSC if more than half its income is paid out in benefits (note the references to ‘payments and benefits’ later on in the chapter). A benefit that is converted into cash would, the author suspects, constitute an indirect payment, and so (although this must be less certain) would a benefit that was convertible into cash even if it was not actually converted. Note also references to payments to ‘associates of the individual’. The word ‘associate’ means a member of that individualʼs family or household; a relative of his; a partner of his (this means a business partner – a domestic partner would be a member of his household); or the trustee of any settlement in relation to which the individual, or a relative of the individual, or a member of the individualʼs family (living or dead) is or was a settlor; and also includes ‘a person who, for the purpose of securing that the individualʼs services are provided by a company, acts in concert’ with him. (The word ‘person’ in law includes a company.)

Point (c) serves to exclude cases where the individual gets the same as, or less than, what he would do if all the payments arose from employed income, after taking tax and NI into account. Note again the use of the word ‘payment’, excluding benefits. As with the first two criteria, this one does not inform us very much. Basically, they all say that anyone operating an intermediary company is likely to be caught in the net.

It is the fourth criterion that ought to give many the let-out. To see whether it applies one has to see whether there is an MSC provider on the scene, and if so whether it is ‘involved with’ the company.