First blood – MSC Victory for HMRC

HMRC are rightly very pleased with their recent tax tribunal victory in the first real test of the Managed Service Company (MSC) legislation, contained within the Income Tax Earnings and Pensions Act 2003. The MSC laws target tax and National Insurance avoidance through the use of private Limited Company structures, generally where workers are ‘encouraged’ into being Directors of a Ltd Company over which they have little or no control.

This particular case has resulted in back-taxes of around £160k owed by the five businesses heard at tribunal, rising to an estimated £9m for all managed service companies who were part of the scheme. Importantly, HMRC are already planning to transfer debts to the company who ran the scheme, Costelloe Business Services Ltd, which is a key feature of the MSC legislation, and they may not stop there.

There’s a valuable lesson to be learned that if the relationships between Recruitment Agencies, Accountants and Workers are not set out and properly defined, communicated and understood then the financial risks can be catastrophic. And off the back of the result of this case, no doubt, HMRC will be targeting other similar schemes with future victories expected as set out in their most recent Spotlight article.

If you’d like to know more about the MSC legislation, or advice and best practice when interacting with Personal Service Companies (PSC’s) then contact OBK Accounting accounting@obk-group.com

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