HM Revenue and Customs (HMRC) won the initial case in the First-tier Tribunal (FTT) involving attempts to avoid PAYE Income Tax and Class 1 National Insurance Contributions (NICs) on employment income.
HMRC successfully argued that the managed service companies (MSC) legislation and equivalent National Insurance contributions legislation applied to arrangements established and run by a third party – Costelloe Business Services Limited.
On appeal, the Upper Tribunal has upheld the original decision and considered two further areas. Firstly, they have stated that if the answer to the following questions is yes, the person is an MSC provider:
- does the person promote or facilitate the use of a company?
- does that company provide the services of individual?
The second area concerned the issue of “influences” or “control” in that they now have wider meaning. In this case, the provider influenced how payments were made to workers through a standard product. The element of control occurred through the MSC provider to determine the amount to be paid as dividend and administering this process.
This is a very significant victory for HMRC and they have stated that, following the UT decision, they will investigate and challenge these arrangements through every route open to it and seek to recover all tax due plus interest and penalties where appropriate.
Richard Prudence, Regional Director at ePayMe, advises that, if a scheme appears too good to be true, it almost certainly is.