2016 - MSC blog: Surprise that’s not so Surprising: HMRC win First MSC Case in Court.
15 June 2016
15 June 2016
Jack Bonehill, Tax Consultant at Aspire Business Partnership LLP, comments on the first court hearing in relation to the managed service company (‘MSC’) legislation.
Since the introduction of the MSC legislation on 6th April 2007 there has not been a court hearing to enable us to sees how MSC legislation would be interpreted by a tribunal – until the 21st April this year. The case Christianuyi Limited and others (the appellants) v HMRC (the respondents) sends a message that HMRC may seek to win more of these cases following their success.
Overview
The case involved five customers of Costelloe Business Services Limited (‘CBS’), these being the appellants, with CBS as the alleged involved MSC provider. The product offered by CBS was called the Gold Business Service (‘GBS’), and was CBS’s response to the introduction of the MSC legislation.
There are 4 conditions that must all be satisfied for a company to be an MSC. The core question in this case is whether there is an MSC provider involved with the companies; more specifically, whether CBS was involved with the companies. There was no contention that the other conditions were met. There was also no contention that CBS was a MSC provider.
An MSC provider is involved with a company if the MSC provider:
Only one of these conditions needs to be met.
Summary
CBS was deemed to be an MSC provider involved with the companies: they were deemed to meet conditions (a), (c) and (d) by the tribunal.
Condition (a): does the MSC provider benefit financially on an ongoing basis from the provision of the services of the individual?
In the tribunal’s view, meet this condition, because:
Condition (c): does the MSC provider influence or control the way in which payments to the individual are made?
In the tribunal’s view, CBS did meet this condition, because:
However, the tribunal also said:
Condition (d): does the MSC provider influence or control the company’s finances or any of its activities?
The tribunal rules that CBS met this condition, because:
Points to take away
This case shows how important it is not to become an MSC provider when the only condition that could stop a company being an MSC is because there is no MSC provider involved with the company.
It is important that, if one is relying upon the exemptions from being an involved MSC provider, they merely provide accountancy service or legal services in a professional capacity, or that they merely carry on a business of placing individuals with persons who wish to obtain their services.
If the exceptions are not met and one is an MSC provider, it is almost inevitable that they are involved.
View the full case here.