Used a tax planning scheme?
So…you hear from your friends/colleagues about a Managed Service Company who offer to lower your tax liabilities and you take it. Understandable (maybe) but have you properly taken into consideration the full impact this could have?
Managed Service Company (MSC) providers, PAYE umbrella companies and Employee Benefit Trusts have been popping up left, right and centre since the introduction of the IR35 legislation in 2000.
A Managed Service Company is usually a Limited company that has been set-up by a third party (MSC provider) who retains full corporate responsibility of that Limited company.
This allows them to receive minimum salary payments and have the remainder of the balance paid as a dividend; although the actual company is owned and run by the service provider.
Employee Benefit Trusts work differently in so far as there is a salary to the person employed and loans are given by the Employee Benefit Trust, which attract a small benefit in relation to the actual loans.
Our concern is a case known as Macdonald (HMIT) v Dextra Accessories Ltd and others in July 2002 on Employee Benefit Trusts that were lost by Dextra Accessories Ltd, the appellants.
Subsequently, the victory for HM Revenue and Customs was upheld by the House of Lords.
In August 2007 the law changed making third parties liable for tax and National Insurance (NI) payments that have been deducted by Managed Service Companies but not paid over to HMRC.
KinsellaTax are receiving more and more telephone calls from nervous and irate taxpayers involved in Managed Service Companies and Employee Benefit Trusts.
Although they may honestly believe the scheme they are involved in is wholly tax compliant (based on the promises from the Managed Service Companies they have bought the scheme from) HMRC may see this very differently.
The sad fact about this is that these Managed Service Companies will simply close down once they find themselves under tax investigation, leaving all their clients to bear the brunt of HMRC’s fierce investigation.
They will be completely left in the lurch.
HMRC want the tax owed… simple as that.
If it’s easier to come to you, the client, they will do.
Legislation is now in place to recover those losses from third parties. That may be you.
If you get a letter from HMRC do not contact them; contact KinsellaTax.
We are getting enquiries every day relating to various schemes run by companies such as Talent Resource Management for Managed Service Companies (MSC).
Talent Resource Management is just one company offering tax-saving schemes and some of the managed service companies offering these schemes are currently under investigation by HMRC. As a result, their clients and ex-employees are now being chased by Inland Revenue tax inspectors.
The majority of letters being received from HMRC to individuals are opening enquiries under Code of Practice 8 for tax avoidance.
If you are, or have been, a client of Talent Resource Management or any other Managed Service Company Provider, PAYE umbrella company or Employee Benefit Trust you should contact KinsellaTax immediately.
Even if you have not yet received a letter from HMRC you should seek professional advice from KinsellaTax.
If you are involved in an ongoing dispute with HMRC with offshore trusts after dealing with Montpelier Tax Consultants (Isle of Man) then contact KinsellaTax NOW on 0800 471 4546.
We are currently dealing with a number of clients who have become embroiled in tax investigations after using the services of Montpelier Tax Consultants (Isle of Man) and are ready to help you come to a satisfactory settlement with HM Revenue and Customs.
If you are yet to receive an intrusive letter from HMRC you may have the opportunity to make a Voluntary Disclosure in order to repay any tax due.
If you have been lying awake at night terrified at what might happen. Pick up the phone and speak to one of our dedicated tax investigation experts NOW on 0800 471 4546.
Don’t waste any more time, get advice from Managed Service Company experts NOW.
Managed Service Companies
An alternative form of company has become increasingly popular for freelance contractors since the introduction of the IR35 legislation in 2000 known as a Managed Service Company (MSC).
A Managed Service Company is usually a Limited company that has been set up by a third-party company (a Managed Service Company Provider) who retains corporate responsibility of that Limited company.
This allows them to receive minimum salary payments and have the remainder of the balance paid as a dividend although the actual company is owned and run by the service provider; a Managed Service Company Provider.
This structure has become a popular choice as the contractors benefit from paying lower tax bills and National Insurance Contributions and also have little corporate responsibilities.
The MSC Provider normally also performs company secretarial duties and provides basic tax advice.
In return for these benefits, the provider charges a fee for delivering the service.
The MSC provider will manage and retain 100% control over the company, collect fees due on behalf of the contractor and then distribute the bulk of the income through tax-efficient dividends.
In order to work within these boundaries, the workers must pass IR35 tests to allow them to collect dividend payments.
Both HMRC and the UK Treasury announced they needed to address the use of Managed Service Companies as they were concerned that those who were deemed to be ‘employed’ in the eyes of the law were using these structures as a form of tax avoidance.
The Social Security Contributions (Managed Service Companies) Regulations were launched in 2007 and removed many of the tax advantages for contractors working through them.
HMRC have grown increasingly frustrated with MSC’s as, when investigated, they were able to liquidate due to lack of assets and open up as a new company the very next day.
As a result of the MSC legislation, all Managed Service Company Providers now have to operate Pay-As-You-Earn (PAYE) tax correctly and deduct the relevant tax and National Insurance Contributions on all income paid.
The outcome of this is that the only advantage now of a MSC is that the contractor still has no corporate responsibility.
In order to reinforce this amendment in law, HMRC have been permitted to recover any underpaid taxes with the help of third-party companies.
In other words, if a contractor is found to have underpaid tax as a consequence of being involved in a Managed Service Company it is likely they may find a bailiff on their doorstep.