On 19 January 2018, the Upper Tribunal16 held that five companies were “managed service companies” (MSCs) for tax purposes due to the level of involvement of the companies’ provider.
Under the MSC tax rules, an MSC is required to account for tax and national insurance contributions on amounts paid to the “worker” pursuant to the engagement between the MSC and the end-client, howsoever the payment is described (ie, the amounts received by the worker are treated as earnings from an employment). To be caught by the MSC rules, amongst other requirements the “provider” of the services (ie the use of the company to provide the services of individuals) must be “involved” with the company.
The five companies were personal service companies, and each had a single individual shareholder whose services were provided to end clients. The companies were provided as a “package” by a services provider. The provider gave the individual shareholders a choice as to how frequently they received salary payments from the company, and whether they received a minimum wage or other, specified, amount. The provider provided a number of services to the companies.
The Upper Tribunal found that the companies were MSCs within the meaning of the tax legislation17. The Tribunal held that the services provider in this case was (i) an “MSC provider”, as required under the applicable legislation, and (ii) “involved” with the five companies. On the question of “involvement”, it was found that:
• the services provider benefitted financially “on an ongoing basis from the provision of the services of the individuals”, and
• the services provider influenced the way in which payments were made to the individuals, and influenced the companies’ finances and activities.
The decision can be viewed here.