HMRC has issued and updated Spotlight 32: Managed Service Company legislation – tax avoidance scheme involving unpaid PAYE and Class 1 National Insurance contributions.  This follows their recent victories in the First Tier Tribunal (FTT) and Upper Tribunal (UT). 

The Managed Service Company (MSC) regime was brought in to counteract tax avoidance schemes which had been set up to avoid IR35:

The MSC rules were recently considered by the Courts for the first time in the FTT case of Christianuyi Limited & Others v HMRC [2016] TC05045.  HMRC were successful in that case at both the FTT and on appeal to the UT (Christianuyi Limited & Others v HMRC [2018] UKUT10). In this Spotlight they state that:

The spotlight also higlights the fact that in addition to the original FTT decision, the UT considered 2 additional areas.

  1. The definition of a MSC provider as ‘a person who carries on a business of promoting or facilitating the use of companies to provide the services of individuals’. This decision confirms HMRC’s view that if the answer to both of the following questions is Yes, a person is a MSC provider:
    • does the person promote or facilitate the use of a company?
    • does that company provide the services of individual?
  2. The UT decided that ‘influences’ or ‘control’ has a wider meaning than that expressed in the FTT decision. In this case, Costelloe Business Services Limited influenced how payments were made to workers through the use of a standard product, by causing the workers to receive wages and dividends instead of just wages. When workers buy into such products, allowing the MSC provider to determine the amount to be paid as a dividend and to carry out the administrative steps to affect this, it amounts to ‘control’.

Links

Our Subscriber guide: Managed Service Companies (MSCs)

Our guide: Accountants: are you an MSC Provider?

Write up of the Christianuyi case: MSC: provider was ‘involved’ and Confirmed: MSC provider involved with personal service companies.

Anti-avoidance: HMRC's spotlights for HMRC’s other spotlights

HMRC Spotlight 32