Managed Service Company Legislation
Ultimately, where HMRC are found to be correct, a liability arises on the PSC for additional Tax found to be due plus interest and penalties where appropriate. That would be by treating the dividends received as earnings and subjecting them to the full amount of income tax and NIC that would have been due under PAYE.
Where the PSC is unable to pay, there are transfer of debt provisions that can transfer the liability to its directors or office holders, and thereafter the MSCP, its directors and office holders. In these circumstances, the limited liability afforded by a corporate vehicle will not protect such persons from the transfer of debt
What do I do next?
The notices so far have come in the form of Regulation 80 Determinations. These are assessments for underpayment of income tax on a company. They will also normally come with a Section 8 notice that is the equivalent for NIC. They must be issued within 4 years of the end of the tax year, so first check the time limits to ensure validity. HMRC frequently fails to observe this.
Second, gather evidence.
When raising any appeal, including detailed evidence and rebuttal to HMRC’s position, with reference to the legislation, is your best chance of defence- do this early. You have 30 days from the date of the letter to raise your assessment so do not delay. A request can also be issued to postpone the tax due, stopping it from collection action until the matter is concluded via the enquiry.
Observe the conditions that HMRC consider have been breached, and the assumptions they have made in support of this. Identify the key factual consideration in your case that contradict this.
Third, If you are in any doubt, speak with your accountant or an independent third party. Likewise, if you are advising clients who are in receipt of this, please feel free to contact us for a no-fee discussion around obligations and options.
As above, these demands are seen as the next step in HMRC’s continued action against the contracting sector. WTT remains a leading advocate of the industry and the contingent supply chain and we believe that the sector’s importance in the UK economy is not to be underestimated, particularly as we begin to recover from the effects of the pandemic. As a result, we will always help where we are able.
Give yourself the best chance of proving this by selecting your own evidence and rebutting HMRC’s assumptions based on that but most importantly, do not ignore and do not delay.
WTT offers a free hour consultation to gather facts and set out a strategic plan for you to manage demands of this nature. If you’d like to speak with our specialist team to gain support in the matter please contact us below.
With the continual coverage of HMRC launching investigations against contractor’s PSCs, citing breach of MSC Legislation, WTT’s Rhys Thomas & Tom Wallace discuss what an MSC is, whether or not your PSC is at risk and steps contractors can take.
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