FTT decides test case concerning new Managed Service Company legislation

In Christianuyi Limited & Ors v HMRC, TC/2013/02313, the First-tier Tribunal (Tax Chamber) (FTT) considered the first appeal against tax determinations and notices made under the new Managed Service Company (MSC) legislation in Chapter 9, Part 2 Income Tax (Earnings and Pensions) Act 2003 (ITEPA). 


The MSC legislation was introduced to tackle the use of mass-marketed intermediary schemes by promoters of intermediary companies.  Under the legislation an “MSC Provider” is prohibited from being “involved” with a personal service company.  Such involvement is said to include, amongst other things specified in sections 61B(2)(a)-(e) ITEPA, benefiting financially on an ongoing basis from the provision of the company’s services; influencing or controlling the way in which payments to the individual owner of the company are made; or influencing or controlling the company’s finances and activities.

The appeal

The appeal was brought by five appellants, who are all personal service companies.  Those companies were variously set up and/or managed to some extent by an intermediary provider, Costelloe Business Services (CBS).  It was not disputed that CBS was an MSC Provider.  However, the Appellants argued that they were not “involved” with CBS within the meaning of the MSC legislation.  The Appellants’ case was that CBS did no more than any back office services provider would have done and had insufficient influence or control over the way in which their personal service companies operated.

Finding for HMRC and dismissing the appeals, the FTT held that the term “involvement” had to be construed widely and that the words “influence” and “control” should be given their ordinary and natural meaning.  On the facts, the Appellants were all involved with CBS.  CBS benefited financially on an ongoing basis from the provision of the Appellants’ services; influenced or controlled the way in which payments to the individual owners of the Appellant companies were made; and influenced or controlled the companies’ finances and activities.

Akash Nawbatt and Kate Balmer appeared for the successful Respondent, instructed by the General Counsel and Solicitor to HM Revenue and Customs. To read the full decision, please click here.

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