HMRC hails 'cracking win' against MSC contractors

6th May 2016 | News

HM Revenue and Customs (HMRC) is celebrating victory in the first ever court appeal against the Managed Service Companies (MSC) legislation.

The ruling in favour of the tax authority will safeguard up to £9 million of tax owed in respect of all limited companies set up under the scheme before the court, run by Costelloe Business Services (CBS).

CBS was accused of encouraging tax avoidance of £378,000 (including National Insurance Contributions) by steering contractors into limited companies.

The firm made a solitary defence in court, stating it was not caught by the MSC legislation because CBS – and its associated firms – were not “involved with” each company i.e. those run by the contractors who lodged the appeal.

CBS said the scheme made available solely provided workers’ services to individual clients and CBS was “merely in the business of assisting with the provision of companies”.

The firm also said that despite dishing out advice to contractors, such as how to remunerate via a salary-dividend combination, this did not make them “involved with” contractors in the way the MSC rules state.

Nevertheless, appeal judges found other evidence to suggest it did. More specifically, CBS were adjudged to have influenced the finances of contractors; influenced the manner in which they paid taxes and benefitted themselves financially.

An HMRC spokesman said of the case: “We are pleased with the Tribunal’s decision that this so called ‘own company’ avoidance scheme does not work.

“The tax (including NICs) protected in these cases is £378,000, with £9m expected in respect of all service companies set up under the scheme operated by Costelloe Business Services.”

The spokesman labelled the ruling a “cracking result” for the Revenue and said that this should serve as a warning to other MSC providers to come forward as soon as possible to settle their tax and NICs affairs.