HMRC warn of the perils of being a Managed Service Company
Capitalising on its recent success in the First Tier Tax Tribunal ruling in Christianuyi Ltd & Others, HMRC has published Spotlight 32 ‘Managed Service Company legislation – tax avoidance scheme involving unpaid PAYE and Class 1 NIC’
The Revenue have made great play of their victory stating that the tribunal decision supports their firm view that MSC arrangements do not work. What they don’t mention is that the arrangements in Christianuyi were such that they were always doomed to failure from the start due to the Managed Service Company Provider (MSCP), Costelloe Business Service Ltd, flawed operations. It was therefore given that HMRC would win from the outset.
HMRC are continuing to open enquiries into users of similar schemes that include the provision of workers in many different sectors, including road haulage, health, care and education. The department say that they will investigate and challenge these arrangements via every route open to it, including litigation, and seek full settlement of the tax, plus interest and penalties, where appropriate.
Those involved in similar arrangements will be expected to pay the PAYE tax and NIC they owe following “this emphatic win” for HMRC. ‘Emphatic’ only because a coach and horses could be driven through Costelloe’s set up, so let’s not get too carried away chaps!
Any part of the tax and NIC debt that cannot be recovered from the MSC itself will be transferred to the MSC’s directors, the MSCP and the MSCP’s directors and associates on a joint and severally liable basis.
MSCPs themselves are now being advised to carefully consider the Disclosure of Tax Avoidance Scheme (DOTAS) rules to decide if their arrangements they are marketing should be declared to HMRC.
Whilst this comes as a timely reminder to those involved with an MSCP to review their arrangements and take the necessary advice, these very broad signals that HMRC are sending out are another scare tactic, to ward off workers from using bona fide organisations who legitimately operate outside of the MSC legislation.