HMRC just confirmed Churchill Knight/Boox Test Cases. Here’s what it means

The test case for the Boox contractor and separate test case for Churchill Knight contractors could potentially be scheduled for the end of this year.

Almost three years ago, HMRC sent out several hundred generic determinations and letters to contractors in the MSC investigation connected to accountancy providers Churchill Knight and Boox.

Fast-forward to today, and HMRC has just issued another batch of letters that confirm whispers that there will be ‘test cases’ under the MSC legislation for contractors who used both of these providers.

But first, writes Tyra Ali of Markel Tax, exclusively for ContractorUK, let’s start with the initial HMRC letters of April 2022.

When did HMRC start investigating Churchill Knight and Boox?

Under section 61B of the Income Tax (Earnings and Pensions) Act 2003, an initial in-depth investigation by HMRC focused on the classification of Boox and Churchill Knight as Managed Service Company Providers (MSCP).

While an accountancy service provider would no more want to be deemed an MSCP than a contractor would wish to be deemed an MSC, the MSCP does not receive determinations and therefore has no right to appeal.

Who were the MSC determinations issued to?

The determinations were issued to the individual contractors as liability primarily sits with them. And test cases must be selected for a hearing at the First-tier Tribunal to determine the matter.

HMRC did not initially carry out any fact-finding on individual contractors who elected for the matter to be heard at tribunal.

The Revenue subsequently took two different approaches when selecting suitable ‘test cases’ with both accountancy providers.

How have the Churchill Knight test cases been selected?

Churchill Knight (CK) selected test cases through a collaborative process with HMRC, focusing on identifying representative cases that could effectively test the application of the MSC legislation, and whether Churchill Knight & Associates Limited is deemed to be the MSC provider under the 2007 legislation.

The firm worked directly with HMRC over several months to select representative test cases that would sufficiently cover a broad set of facts to ensure the tribunal's decision would be beneficial not only for the test cases but also for other non-test CK and Boox clients. The selected test cases were chosen based on their ability to represent the broader issues faced by CK's clients.

How has the (single) Boox test case been selected?

Boox took a slightly different approach and opted to seek judicial review, following which they sought to formally “join” themselves to two contractor appeals which were going through the tribunal process (contractors Markel are representing). 

Following this, eventually a number of other contractors were added to a proposed group test case. In order for the application of a test case to be heard, HMRC needed to demonstrate there was common fact and law among the cases selected.

However, no discussions or analysis were undertaken to assess the suitability of the named appellants as test cases, even though contractors must agree to be a designated test case with HMRC and the tribunal must also give their agreement, which had not happened.

Unfair test case selection

By the time the matter reached the tribunal for a second case management hearing, a new category of contractor became known: those who failed to appeal HMRC’s determinations and a debt transfer notice was issued to Boox.

The judge agreed that the ‘test cases’ selected had not been done so fairly and asked HMRC and Boox to choose relevant cases. The investigation up to that point had been a lengthy, complex process, involving multiple parties and legal considerations, which made the selection of the Boox test cases extremely complicated.

A strategic move by HMRC, to have just one MSC test case for Boox contractors?

During Boox’s recent case management hearing, HMRC made a pivotal decision to select a single contractor as a test case, utilising evidence from an additional four anonymous cases to be presented in the tribunal hearing to determine whether Boox qualifies as an MSCP, based on the legislative points outlined by HMRC.

The selection of a single test case could be a strategic move by HMRC.

Selecting a single test case would allow for a detailed and thorough examination of the specific facts of one identified contractor under which MSC legislation might apply. This could also help them deal with any cases not in the tribunal process and avoid any further delays.

What are the potential issues of a single Boox test case?

The potential issues with this are the potential lack of specific details necessary to understand how the legislation applies could make it difficult to substantiate the accuracy and relevance of the information. And the single test case might not be representative of the possible situations, which could lead to unfair conclusions and set a narrow precedent and interpretation of the law to all contractors associated with Boox.

Despite us having a crack at the timeline back in August 2024 (where we estimated a judgment for June 2026), timescales are still a little unknown.

A seminal MSC test case scheduled before 2025 is over? Potentially

At the time of writing however, it seems that the test case for the Boox contractor and separate test case for Churchill Knight contractors could potentially be scheduled for the end of this year (from what information we have it would seem as though perhaps the Boox test case is further along in the process and may be heard first). 

In either case, if the FTT determines that Boox/Churchill Knight are not an MSCP, all determinations by HMRC will become void. This would be a substantial outcome for contractors, potentially relieving them of significant tax liabilities.

Why this (probably) only round one in HMRC v Churchill Knight Boox contractors

However, it is important to note that appeals to the higher courts are likely to follow, which means we may still be several years away from a finite conclusion.

The decisions in the Boox/Churchill Knight test cases will set a legal precedent for similar cases. This means that the findings and conclusions reached by the tribunal will influence future interpretations of the MSCP classification and its application to other contractors and businesses.

Final considerations if the Boox/Churchill Knight MSC test cases affect you

All contractors should remain proactive and informed.

The selection of the test case and anonymous cases is a significant development, but it is only one step in a complex legal process.

Contractors should continue to monitor the situation closely  -- including potentially further written updates from HMRC -- and seek professional advice to navigate the challenges ahead. The outcome of the tribunal hearing will have far-reaching implications, meaning it is essential for contractors to be prepared for any eventuality.