Churchill Knight & Boox clients being investigated as Managed Service Companies

[ritwolf]

What does the community think about the following arguments:

- If you continue paying accountancy fees even when the company was not trading, that proofs that the accountancy firm (deemed as MSCP) does not benefit from the end clients on an ongoing basis

- Given the same time period, if you invoice the same client 2 different invoices (for different work), is this proof that the accountancy firm is not in control, and you are providing additional services?

[GregRickshaw]

What does the community think about the following arguments:

- If you continue paying accountancy fees even when the company was not trading, that proofs that the accountancy firm (deemed as MSCP) does not benefit from the end clients on an ongoing basis

- Given the same time period, if you invoice the same client 2 different invoices (for different work), is this proof that the accountancy firm is not in control, and you are providing additional services?

We think point one is exactly where HMRC win, not just at the reduced dormant/inactive fee but on all fees paid periodically.

Point two is barely relevant unless you are a consultancy firm and you had one of your employees at one site/client and another employee at a different client/site. In which case you can prove you were not a PSC and HMRC have to back off. It's having employees (multiple including you) which is the key in your second point.

[ritwolf]

We think point one is exactly where HMRC win, not just at the reduced dormant/inactive fee but on all fees paid periodically.

HMRC states, according to Section 61B(2) ITEPA 2003:

a. Benefits financially on an ongoing basis from the provision of the services of the individual

Shouldn't it be the opposite? The accountancy firm has fees that you pay as long as the company is active (in my case, I never put the company into dormancy... it was just not trading as it didn't manage to find new business). Even when the individual is not providing services (but still receives payments), the accountancy firm has its fees. So, it's not benefiting financially from the services of the individual --> It has its fees

Sorry if I'm misunderstanding and maybe challenging something very obvious, just want to make sure I understand this

[ritwolf]

Point two is barely relevant unless you are a consultancy firm and you had one of your employees at one site/client and another employee at a different client/site. In which case you can prove you were not a PSC and HMRC have to back off. It's having employees (multiple including you) which is the key in your second point.

If the fees are still the same, does it not proof that the fees are independent from the services provided by the company?

[GregRickshaw]

HMRC states, according to Section 61B(2) ITEPA 2003:

a. Benefits financially on an ongoing basis from the provision of the services of the individual

Shouldn't it be the opposite? The accountancy firm has fees that you pay as long as the company is active (in my case, I never put the company into dormancy... it was just not trading as it didn't manage to find new business). Even when the individual is not providing services (but still receives payments), the accountancy firm has its fees. So, it's not benefiting financially from the services of the individual --> It has its fees

Sorry if I'm misunderstanding and maybe challenging something very obvious, just want to make sure I understand this

That is what we all 'believe' however it matters not what we think. HMRC will argue Boox benefitted from you just being in business volume of work notwithstanding, many think the dormant/inactive fee is a key point here that Boox benefitted on a sliding scale thereby benefitting always from your company.

Fees and packaged products is where this hangs, it's almost impossible to say Boox or CK did not benefit on a regular basis from your company. If you stopped using them for the months you didn't work then maybe it's a different story. Many paid a monthly fee no matter what and a sliding scale unfortunately probably muddies the water further.

As to invoicing this can be proven many times over Boox and CK did not benefit from the amount or number of invoices, this is not where the battle lines will be drawn, IMO. A monthly fee may be enough to prove point a) that Boox and CK benefitted from your income (paraphrased).

This is going to FTT, UTT, SC, CoA (funds permitting), this is going to be a very long process which suits HMRC way more than it does you.

[antuk]

That is what we all 'believe' however it matters not what we think. HMRC will argue Boox benefitted from you just being in business volume of work notwithstanding, many think the dormant/inactive fee is a key point here that Boox benefitted on a sliding scale thereby benefitting always from your company.

Fees and packaged products is where this hangs, it's almost impossible to say Boox or CK did not benefit on a regular basis from your company. If you stopped using them for the months you didn't work then maybe it's a different story. Many paid a monthly fee no matter what and a sliding scale unfortunately probably muddies the water further.

As to invoicing this can be proven many times over Boox and CK did not benefit from the amount or number of invoices, this is not where the battle lines will be drawn, IMO. A monthly fee may be enough to prove point a) that Boox and CK benefitted from your income (paraphrased).

This is going to FTT, UTT, SC, CoA (funds permitting), this is going to be a very long process which suits HMRC way more than it does you.

The monthly fee argument seems dumb, the accountant does the annual accounts - this is the bulk of the fee. The monthly fee is purely the annual fee split into 12 instalments, in the same way you can pay insurance, council tax etc monthly but its an annual cost. Ive had quotes for one off annual accounts and it was 80-90% what boox charged over 12 months

[jamesbrown]

HMRC states, according to Section 61B(2) ITEPA 2003:

a. Benefits financially on an ongoing basis from the provision of the services of the individual

Shouldn't it be the opposite? The accountancy firm has fees that you pay as long as the company is active (in my case, I never put the company into dormancy... it was just not trading as it didn't manage to find new business). Even when the individual is not providing services (but still receives payments), the accountancy firm has its fees. So, it's not benefiting financially from the services of the individual --> It has its fees

Sorry if I'm misunderstanding and maybe challenging something very obvious, just want to make sure I understand this

I think you're misunderstand the link to service provision. There's no issue with paying for accountancy services continuously and consistently, that is neutral with respect to this legislation or, at least, it is not automatically caught (note the careful wording of the accountancy "exemption", which is really the opposite of an exemption). Most accountants break their annual bill into monthly installments, afterall (but it is an annual bill). The problem arises when the fee you pay the accountant IS linked to the services you provide to your end clients. In the weakest scenario, this could be a reduced fee for dormant companies. In a strong scenario, this could be a fee linked to each invoice (which is what CBS did originally). But, again, merely paying an accountant for professional services is neutral or not automatically caught, which should not be confused with being automatically exempt.

[jamesbrown]

FWIW, ritwolf, you're probably not going to help yourself or anyone else by overanalyzing this. The legal arguments will be complex and are yet to be had as they relate to CK and Boox and you're not really in a position to evaluate them, nor are most/any of us here. The best you can do is to read the CBS judgement, which sets the scene for the broadening interpretation of the legislation and future case law, ensure that you have professional help, and then await the tribunal/court process.

[DealorNoDeal]

In a strong scenario, this could be a fee linked to each invoice (which is what CBS did originally).

Yep, CBS charged a % of the amount invoiced. Since they did all the invoicing, and managed the PSC bank accounts, they just deducted their fee every month before paying the scheme users.

I still can't get my head around how they thought this wouldn't be caught by the MSC legislation.

[eek]

Yep, CBS charged a % of the amount invoiced. Since they did all the invoicing, and managed the PSC bank accounts, they just deducted their fee every month before paying the scheme users.

I still can't get my head around how they thought this wouldn't be caught by the MSC legislation.

Because they didn't think of the MSC legislation when they came up with the original plan.

They then changed their business model to a flatter fee but the fact they were taking it only when money was earnt didn't really help their cause.