Taxman secures MSC tribunal victory

HMRC has recorded another victory against a tax avoidance scheme provider, making it the taxman’s third high profile court win in the space of a month.

The latest court battle was between HMRC and Costelloe Business Services (CBS), a former managed service company (MSC) that encouraged individuals to set up limited companies in order to avoid income tax and national insurance.

The managed service company provided tax avoidance services to individual clients, including social workers, doctors and NHS professionals. Many of the scheme’s users had been steered towards the avoidance product through their recruiter.

CBS advised its MSC users to take their remuneration by way of a small salary, expenses and a large dividend. The dividend did not attract PAYE and NICs.

The first-tier tribunal supported HMRC’s claim that all five cases involved used an avoidance product operated by CBS to avoid income tax and Class 1 national insurance contributions on employment income.

CBS argued that the scheme sidestepped MSC legislation because they were not involved with each service company.

Judge Guy Brannan sided with HMRC’s view that CBS benefitted ‘‘financially on an ongoing basis from the provision of the services by the owners of each of the appellant companies”.

A HMRC spokesperson commented: “We are pleased with the tribunal’s decision that this so called ‘own company’ avoidance scheme does not work. 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.

“This win is yet another reason for people to get out of avoidance and stay out, proving tax avoidance doesn’t pay. HMRC is relentless in closing down avoidance schemes and we encourage users of similar products operated by CBS and other managed service company providers to settle their outstanding tax or NICs enquiries now.”

Earlier this month HMRC won a Supreme Court battle against film tax avoidance scheme Eclipse 35, and also claimed victory against Fidex Ltd, a subsidiary of BNP Paribas that controlled a multimillion pound tax avoidance scheme.

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