Contractors’ Questions: What’s happening with HMRC’s MSC investigation into Boox and Churchill Knight?
Contractor’s Question: Are you aware of any forum for parties affected by HMRC’s investigation under the Managed Service Company Legislation of Churchill Knight and Boox, other than the portal run by Churchill Knight?
I wish to connect with other like-minded people who are victims of HMRC’s new MSC campaign, so we can share legal costs, experiences of HMRC, and ideas to protect ourselves.
My own personal thought is that many who have viewed webinars on the issue are getting advice that’s too diverse. I wish to pin down what the ‘right’ guidance really is, pending an update -- if one is available on these two worrying HMRC investigations?
Lastly, what is the latest with the MSC test cases please, as this process seems to be very slow? It would be interesting to know if we contractors/taxpayers, can speed up whatever the currently likely court date is.
Expert’s Answer: There are a number of forums, including the ContractorUK Forum where contractors can share their experiences of HMRC’s MSC campaign, and are actively doing so. One such thread for Churchill Knight/Boox contractors is here.
Contractors are initially, solely, liable
It’s worth remembering, under the Managed Service Company (MSC) legislation the Managed Service Company Provider (MSCP) is not the party which is liable for the debt.
That liability sits initially solely with the contractor, although the MSC transfer of debt regulations could be used to transfer the liability up to the MSCP -- if the PSC or its director cannot meet the liability. While one would like to think that an accountancy service provider would no more wish to be deemed an MSCP than a contractor would wish to be deemed an MSC, the MSCP does not have determinations to appeal, and it is not faced with the immediate liability.
As to your request for guidance, problematically, what is right for one contractor may not be right for another. It is therefore very difficult to provide a one-size-fits-all solution, in terms of the right advice.
We would consider, however, that broadly speaking the following is best practice:
1. Get factual
Gather all documentation relating to the engagement with the MSCP (evidence of advice provided, evidence of instances where you exerted your authority in the running of your company, setting own salaries, providing instruction).
While an HMRC enquiry will cover a specific period, it is often helpful to look outside of that period. So create a timeline of your company: when it was set up, why, by whom; previous accountants; number of clients; IR35 status etc.
With this timeline, what you are looking to do is demonstrate that your business is independent and operated by you (i.e. it is not a contracting solution presented to you and managed by the MSCP).
2. Get technical
Understanding the Managed Service Company legislation is essential. The only way to demonstrate your company is not an MSC is to apply the legislation. There are many articles providing explanations of the legislation freely available online. But do opt for reliable publishers without a vested interest, or publishers with a track record of providing expert-authored pieces.
Then remember, this is your enquiry, your liability. You do not need to rely on the MSCP to provide you with information. You do not need their advice – as an independent business it is your responsibility to look after your own interests.
Likewise, what is beneficial for your company may not be what is in the best interests for the MSCP. If in doubt, we would always advocate seeking specialist advice. You want a specialist who is able to look after your interests, and only your interests.
3. Get active
You must appeal HMRC determinations within 30 days if you do not agree you are an MSC. While test cases are likely to be heard, HMRC are proceeding to offer ‘Independent Review’ in some cases (both where the contractor has specifically asked for one, and in cases where they have not).
If the case progresses to independent review you must provide any information you want to be considered within the timeframe. If HMRC stills uphold their opinion you have 30 days to lodge an appeal to tribunal. These deadlines are strict and you must not delay in taking action.
See you in court...
We understand test cases are to be heard, but firstly contractors will need to agree to be part of a test case with HMRC and the tribunal also needing to give their agreement.
A tribunal date might be fixed during the latter part of this year (2022), but it will more likely be fixed in 2023 – much depends upon the availability of all parties (including the tribunal). Once the case has been heard, it could be at least a further three months before a decision is released.
The expert was David Harmer, associate director of contractor solutions Markel Tax.