In yet another attack on contractors working through their own limited companies, HMRC has now sent tax bills to 1,000 contractors after accusing their accountancy firm of breaching managed service company legislation.
In essence, the specialist accountancy firm Churchill Knight & Associates has been accused of controlling their clients’ limited companies such that the limited company directors were allegedly not taking full responsibility for running their own business. Significant tax bills have been issued by HMRC which effectively charge PAYE on income received by Churchill Knight’s accountancy clients.
What are they accused of?
As reported in the Financial Times, HMRC’s letters state that Churchill Knight & Associates met three out of five features consistent with being an MSC. First, it “benefits financially” from the provision of services by contractors by charging a yearly fee. However, this is standard practice from any accountancy business that is simply charging a fee for their services.
Second, it “influences or controls” how they received payments by issuing a yearly statement of how much individuals would receive from their company and dividing and spreading this over 12 months. People could only change this by contacting the firm, HMRC said.
Finally, HMRC said Churchill Knight & Associates “influences or controls” the finances and activities of contractors’ businesses by requiring them to use an online portal the firm developed and that there is “no independence from the portal”. However, Churchill Knight has confirmed that customers can transfer in and out of its in-house portal, and that it has clients that do not use the portal at all.
Churchill Knight & Associates strenuously denied HMRC’s allegations and have disputed their findings. They have stated that Churchill Knight had no influence or control over how clients manage their limited companies or take dividends from it.
Aren’t these standard accountancy services?
You could be forgiven for thinking that most of the alleged wrongdoing are simply standard accountancy services. In fact, the MSC legislation specifically exempts accountants from being an MSCP provided that they are doing no more than providing normal accountancy services in a professional capacity.
According to HMRC’s guidance (ESM3515) on the matter, “the test is whether a person is carrying on a business (or a discernable part of their business) of promoting or facilitating the use of companies to provide the services of individuals.”
Impact on affected contractors
Contractors affected have received income tax bills of up to £50k which HMRC require to be paid within 30 days unless appealed. It seems almost inevitable that there will also be demands to come for national insurance contributions. So far bills have been issued for the 2017-18 tax year, and additional years are also likely to follow.
The impact is already enormous as those affected had no idea that any such financial demands were even a possibility, and are now faced with worry, stress and inevitable damage to their mental health. Churchill Knight is supporting their clients to appeal and have been running a help desk specifically for the issue.
HMRC’s approach is reminiscent of the loan charge in making huge financial demands on innocent people who they perceive as guilty tax avoiders, and this is wholly unacceptable.
If you have been affected or need to know more then you might be interested in attending a webinar on Thursday 7 April at 13:00. Run by our friends at specialist tax advisory firm WTT, the event will cover: what an MSC is, whether or not your limited company is at risk, steps you can take, as well as answering questions from the floor.