On 29 July 2016 HMRC published the latest in its series of bulletins about tax avoidance schemes: Spotlight 32.
This follows the decision of the First-tier Tribunal (“FTT”) in Christianuyi Ltd & Ors v Revenue and Customs UKFTT 272 (TC) and concerns the use of managed service companies (“MSCs”) by contractors, using structures designed to circumvent IR35.
In outline, the planning involves an individual providing services to an engager (in the Christianuyi case, the individuals were doctors and other healthcare professionals) via an MSC: the end user of the individuals’ services would contract with an intermediary, which in turn contracts with a company owned by the individual; the idea being that the individuals’ companies would pay CT on their receipts, which could be drawn by the individuals by way of dividends and that PAYE and NIC would not be applied.
In Christianuyi it was held that the MSC legislation in Income Tax (Earnings and Pensions) Act 2003, Part 2, Chapter 9 applied and that payments made to the appellants should have been subject to PAYE and NIC withholding.
Although the FTT has given Christianuyi and the other appellants leave to appeal, HMRC have set out their firm view that all such schemes will be caught by the MSC legislation and reminding promoters of their obligations under the rules on the Disclosure of Tax Avoidance Schemes (“DOTAS”).
The position of clients who provide services through a company should be reviewed in the light of the Spotlight; this is likely to particularly affect clients who work in medicine and social services/social care industries in which this particular structure is common.
For further information please contact the TaxDesk on 0845 4900 509 and ask for Thomas Dalby.