Customers of Costello Business Services who Operated Managed Service Companies are learning of the impact of non paym,ent of tax and non payment of employer and employee national insurance contributions

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The first ever court appeal against the MSC legislation has found in favour of the taxman, who is calling the ruling “cracking” for protecting up to £9million.

Such is the total sum expected to be safeguarded in respect of all limited companies set up under the scheme before the court, which was run by Costelloe Business Services (CBS).

Accused of being a MSC that encouraged the avoidance of £378,000 in tax (including NICs) by encouraging contractors into limited companies, CBS gave just one defence.  

It said it was not caught by the MSC legislation because CBS (and its associated firms) were not “involved with” each company – those run by the contractors who lodged the appeal.

Rather, the scheme CBS made available solely provided workers’ services to individual clients, and CBS was “merely in the business of assisting with the provision of companies”.

CBS also said that despite giving the contractors advice, such as to remunerate via a salary-dividend mix, this did not make it “involved with” them in the way the MSC rules stipulate.

But appeal judges found other evidence that did. Specifically, CBS influenced the finances of the contractors; influenced the manner in which they paid taxes and it benefitted, financially.

"We are pleased with the Tribunal's decision that this so called ‘own company’ avoidance scheme does not work," a spokesman for HMRC reflected on Friday.

"The tax (including NICs) protected in these cases is £378,000, with £9m expected in respect of all service companies set up under the scheme operated by Costelloe Business Services."

The spokesman, who later told ContractorUK the “win” was a “cracking result” for the Revenue, also said other MSC providers should now come forward to settle their tax and NICs affairs