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Appeal against MSC decision?

Appeal against MSC decision?

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I have received a letter from HMRC Local Compliance informing me that one of my client's company is to be treated a Managed Service company (MSC).

The letter cites a company, Costelloe Business Services (CBS), being investigated and identified as a MSC provider.

CBS is no longer trading.  My client used CBS from the period the company started trading in October 2008 until March 2009 when they switched accountants to me.

The company's only activity is the provision of social care services through agencies. The sole director and shareholder provides these services.

Remuneration has been based on minimal salary and balance in dividends.

When she moved to me I explained to her that she would be responsible for ensuring all her contracts with agencies were IR35 compliant herself.  I would then continue to prepare her company accounts and  payroll with minimal salary and balance in dividends.

Any guidance in how I should deal with this  situation would be much appreciated

Replies (8)

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By uktaxpal
01st Aug 2012 18:11

As your client undertook the responsibility of compliance with IR35 you should seek instructio ns from your client and possibly obtain a separate letter of engagement.

If you are proficient in IR35 matters including representation at Tribunals then carry out the work yourself.If not sub-contract the work to one of the specialist IR35 firms.

Presumably,there is no tax investigation insurance in place?

You need to explain the options to your client so they arrive at the correct decision.

obviously,whether or net IR35 applies depends on the facts of the case and unfortunately from the above information provided it is not possible to say.

 

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Kye Burchmore profile image
By Kye Burchmore
03rd Aug 2012 09:51

MSC legislation

I would prepare your client for some very bad news and an extremely tough fight on her hands.

HMRC are currently arguing a significant number of cases like this and are not going to back down easily. IR35 is not the concern here at all, the MSC legislation is a completely different beast altogher and I would strongly recommend your client getting expert advice immediately.

HMRC have already built up an extensive knowledge about Costelloe Business Services and will essentially take the stance that your client will be caught by the MSC legislation unless she can prove othersie (which will not be easy given her likely circumstances).

It is worth bearing in mind that with the MSC legislation, HMRC can go after your clients personal assets and the liability will not simply disappear with the limited company.

I would get her to give Accountax Consulting a call as soon as possible as they know a lot about this area.

 

 

 

 

 

 

 

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By arthvirg230
05th Sep 2012 15:50

little hope I'm afraid.....

I had one of these last year - the Inspector reduced my client's wife to tears - the meeting lasted 4 hours and no progress was made.  Under the MSC rules, even the Company secretary can be liable for the unpaid taxes- unbelievable but true!! - HMRC wouldn't even accept a full and final settlement offer - they wanted the full tax plus penalties - no negotiations.  Good luck - you'll need it!!!

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By davidlchapman
05th Sep 2012 16:42

Timing of payments to shareholder

Does anyone know where I can find an example of the calculations where the company accounting period overlaps significantly with a particular tax year?

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Private Pilot
By [email protected]
05th Sep 2012 16:46

MSC & Costelloe Business Services

I too have a client who received a rather detailed letter from HMRC explaining that Costelloe was within the MSC rules and - without any previous warning / letters - have demanded PAYE from my client.  Now what is interesting is the level of PAYE demanded -  when you look at the minimum fee that someone like Accountax would charge the client simply can not afford the fee. Payment of the PAYE - even if the client and I think it is not due - then becomes an option by shall we say "financial default" as the least cost / risk option. I may be a cynic but I am starting to think HMRC has targeted "small" cases where the cost of defending is not economically viable.

Also, what HMRC will not disclose - but I have this on good authority - is that there are around 20+ cases being challenged by Accountax. What is also interesting is the Revenue's view of the MSC status of Costello - from my discussions I don't think this is such a foregone conclusion as HMRC would like you to believe. Also, even if you fail to win the day on the MSC status, there is an order of "set off" in respect of the passing down of the PAYE liabilities. Before they reach your client they have to try and get the PAYE from Costelloe -  OK that company has no assets, but who introduced Costelloe to your client? If this was a company who is still trading / has assets and it can be proven - then the introducer could be liable before your client. I understand that this particular point - the introduction of Costelloe by an agency to my client has been vigorously denied by that agency. Client couldn't understand why - until this was explained.  

I think this has some way to run. Whilst I am sure most of us have had experience in the dark art of negotiating with HMRC I think the treatment and tactics employed by them when dealing with arthvig230's client is despicable.  

 

 

 

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Kye Burchmore profile image
By Kye Burchmore
06th Sep 2012 16:29

Despicable but not surprising

I think HMRC are just tagetting companies in waves as and when they have the resources to take on more cases, I don't think it is to do with the amount of potential liabiltiies as I understand some of them are substantial.

There is the question of the Transfer of debt but given the fact that Costelloe and its directors are offshore and no longer trading HMRC will not get a penny from them and will look primarily at your client. You can try and push it onto the agency but I doubt it will take the focus and liability away from your client it will just be an extra avenue for HMRC to pursue as well as your client.

I think this definately has some way to run and will most liekly cause a great deal of prolonged stress for the client as well as taking up a considerable amount of time and energy for you both.

HMRC's approach to the enquiry is not surprising and whilst I believe they appreciate the clients didn't know what they were involved with, I understand that reducing client's to tears is a fairly common occurance for them with these cases.

Hope it all ends up working out for the clients and they don't jump from the chip pan into the fire by using some other dodgy PSC solution.

 

 

 

 

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By arthvirg230
06th Sep 2012 17:22

a little more detail....

Firstly, if you look at the way the MSC legislation has been worded you will see that it wateright in the favour of HMRC - I've never come across anything quite like it - I spent a long time arguing the facts with HMRC but the legislation was totally against us.  The offer we had from HMRC was to say that our clients couldn't pay the tax through their company, couldn't pay it personally, and therefore HMRC wanted to make my clients bankrupt - However we were assured that rather than do this this they would seek to transfer the debt directly to the Directors of Costelloe as this would be their preferred option. We didn't choose this route as my clients had a number of properties and it would have been too complicated and risky - so they ended up paying the taxes due.  Luckily they were only caught for an 18 month period so the taxes were not too huge.  I reckon it cost my clients an extra £7k over what they had previously paid (over £60k).  It was a nasty experience that I hopefully won't have to deal with ever again!

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By davidlchapman
30th Sep 2012 23:01

Amending client ITR

Is it necessary to resubmit a client's ITR using the recalculated figures, ie higher salary and lower dividends,than was earlier returned, or is the final amount payable whatever HMRC deem due in NIC/PAYE less the reduction in CT payable?

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