Christianuyi Ltd & Ors v Revenue And Customs

For a company to be a managed service company provider under the Income Tax (Earnings and Pensions) Act 2003, its business need not promote or facilitate the individual’s services themselves. It is sufficient that its business promotes or facilitates the use of companies through which individuals provide services, together with involvement in the company in one of the statutory ways.

Chapter 9 does not reintroduce the employee–self-employed distinction used in Chapter 8. Ordinary accountants, company formation agents and support businesses are not caught merely because some customers use personal service companies. The relevant business purpose and statutory involvement must be established. The appeal was dismissed.

Five companies supplied the services of their sole director and shareholder to end clients. They paid the individuals a small salary and distributed the balance of receipts as dividends. The companies had been incorporated and administered by Costelloe Business Services Ltd, which provided a standardised package covering invoicing, payments, PAYE, accounts and tax.

HMRC treated the companies as managed service companies and Costelloe as a managed service company provider. The First-tier Tribunal upheld the tax determinations: [2016] UKFTT 0272 (TC). The Upper Tribunal dismissed the appeal: [2018] UKUT 0010 (TCC). The central issue was whether Costelloe satisfied the definition in section 61 B(1)(d) of the Income Tax (Earnings and Pensions) Act 2003.

The appeal was dismissed. Costelloe was an MSC provider and the appellant companies were MSCs.

1. Statutory construction. Section 61 B(1)(d) does not require the putative MSC provider to promote or facilitate the individual’s services. The relevant business is one promoting or facilitating the use of companies to provide individuals’ services. The statutory link is between that business and the use of companies of the relevant kind. The provider must also be involved with the company in one of the ways specified in section 61 B(2).
2. Chapter 8 distinction. The employee test in section 49(1)(c), which had hampered enforcement under Chapter 8, could not be imported into Chapter 9. The fact that the Chapter 9 regime treats the worker as an employee for tax and national insurance purposes did not justify reintroducing a distinction between employees and genuinely self-employed persons into section 61 B(1)(d).
3. Statutory boundary. The boundary was drawn by the nature of the provider’s business. A company formation agent, accountant or other support business would not be caught merely because some customers used personal service companies. The assistance provided by such a business would be incidental to its ordinary business, rather than the business of promoting or facilitating the use of those companies. No additional requirement that the provider promote or facilitate the individual’s services could be implied.
4. Context and administration. The 2006 Consultation and 2007 Response showed that Parliament was targeting businesses supplying standardised managed service company structures and administration. The court did not decide the appeal solely on the redundancy point concerning section 61 B(2)(b). The Parliamentary materials relied on by the appellants added nothing beyond the consultation material. The breadth of the definition did not give HMRC an impermissible discretion; the principle described in Vestey v Inland Revenue Commissioners [1980] STC 10 applied.
5. Application. Costelloe’s business promoted a structure in which workers supplied services through companies and then facilitated the companies’ continuing use through its Gold Business Service. The Upper Tribunal’s findings that Costelloe benefited financially and influenced or controlled payments and the companies’ finances or activities were not challenged. Those findings satisfied the involvement requirement.

• Court of Appeal (Civil Division) dismissed the appeal, holding that Costelloe was an MSC provider under section 61 B(1)(d) and that the appellant companies were MSCs: [2019] EWCA Civ 474.
• Upper Tribunal (Tax and Chancery Chamber) dismissed the appeal and held that Costelloe satisfied the statutory definition: [2018] UKUT 0010 (TCC).
• First-tier Tribunal upheld HMRC’s income tax and national insurance determinations: [2016] UKFTT 0272 (TC).