The Finance and Tax Tribunal has ruled in favour of HM Revenue & Customs in five cases in which an avoidance product operated by managed service company (MSC) Costelloe Business Services was used to avoid PAYE income tax and Class 1 National Insurance contributions (NICs) on employment income.
Costelloe Business Services (CBS) case rested on whether the scheme sidestepped MSC legislation with CBS claiming it was not involved with each service company. Recruiter understands the scheme provided workers’ services to individual clients, typically targeting agency workers engaged as social workers, doctors and NHS professionals, many of whom had been steered towards CBS’ product through their recruitment agency.
Recruiter also understands CBS advised MSC users to take their remuneration by way of a small salary, expenses and a large dividend, with the dividend not attracting PAYE and NICs.
MSC rules look through these arrangements to create a deemed employment payment, which effectively applies PAYE and NICs on the dividends received and any disallowed travel and subsistence expenditure.
Commenting on the tribunal win, an HMRC spokesperson said in a statement they 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 £378k, with £9m expected in respect of all service companies set up under the scheme operated by Costelloe Business Services,” the spokesperson said.
“This win is yet another reason for people to get out of avoidance and stay out… tax avoidance doesn’t pay. HMRC is relentless in closing down avoidance schemes and we encourage users of similar products operated by CBS and other managed service company (MSC) providers to settle their outstanding tax or NICs enquiries now.”
The five cases, heard together, included:
- Christianuyi Limited against regulation 80 determinations totalling £43,818.74 and Section 8 notices totalling £27,923.67
- Fanning Social Care Limited against regulation 80 determinations totalling £17,951.26 and Section 8 notices totalling £16,492.52
- Haddassah Limited against regulation 80 determinations totalling £10,972.61 and Section 8 notices totalling £12,568.13
- Dr Jacek Trzaski Limited against regulation 80 determinations totalling £2,672.13 and Section 8 notices totalling £4,400.37
- Jonny Tooze Physiotherapy Services Limited against regulation 80 determinations totalling £10,095.33 and Section 8 totalling £12,126.62
Source: Recruiter