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HMRC internal manual

Employment Status Manual

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HM Revenue & Customs
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Managed Service Companies (MSC): Appeals

Jurisdiction and time-limits

Appeals are to the First Tier Tribunal (“FTT”). An appeal must be made to the address specified in the Transfer Notice within thirty days of the date the Transfer Notice was served and must specify the grounds of the appeal.

Grounds of appeal

The grounds for appeal are set out in Regulation 97G/Regulation 29G. Some appeal grounds are available to all categories of persons while others are only available to persons within the third category:

Available to all:

  • The relevant debt (or part of the relevant debt) is not due from the MSC to HMRC
  • The Specified Amount does not relate to a company which is a MSC
  • The Specified Amount is not irrecoverable from the MSC within a reasonable period
  • The transferee is not a person within section 688A(2), Part 11, ITEPA
  • The transferee was not a person within section 688A(2), Part 11, ITEPA during any part of the tax periods to which the Specified Amounts relate.
  • The transferee was not a person within section 688A(2), Part 11, ITEPA during some part of the tax periods (i.e. for only part of the tax period) to which the Specified Amounts relate
  • The Transfer Notice was not issued within the statutory time-limits
  • The Transfer Notice does not comply with the statutory requirements.

Available to persons in the third category:

  • It is not impracticable to recover the debt from a person in the first or second categories
  • The Specified Amount (or the Lower Amount) does not have regard to the degree and extent to which the person encouraged or was actively involved in the provision by the MSC of the services of the worker.

See ESM3670 - Appendix C supplement sets out the grounds of an appeal, for issue with a Transfer Notice.

Procedure on appeal

Note that once a direction is made in accordance with Regulation 97C(2)/Regulation 29C(2): that the debt of a MSC is irrecoverable from a MSC within a reasonable period (see step 8 in section 5 above). Each person within section 688A(2) ITEPA becomes jointly and severally liable for the debt. The outcome of any appeal by any person is relevant only to that person and has no bearing on the position of any other person to whom a Transfer Notice has been issued.

The two exceptions to the above, where the outcome of an appeal is applicable to all persons who have been served with a Transfer Notice, are:

  1. An appeal under Regulation 97G(3)(a)/Regulation 29G(3)(a): that the relevant PAYE/NICs debt (or part of it) is not due from the MSC.

Note:

  • The “relevant debt” is the PAYE/NICs originally due from the MSC in accordance with the PAYE/Social Security Regulations and not the Specified Amount which may, under some circumstances, be a different sum.
  • Under Regulation 97H(4)/Regulation 29H(4), once the FTT determine the amount of the debt, the amount is conclusive as to the amount of the debt in any later appeal relating to the debt. Where therefore there are subsequent appeals and the relevant debt has already been reduced on appeal by the Special Commissioners, that amount is final and conclusive and cannot be further reduced by the FTT. (However, it can be varied, on appeal, by a higher appellant body.)
  1. An appeal under Regulation 97G(3)(b) /Regulation 29G(3)(b): that the specified amount does not relate to a company which is a MSC.

Where the PAYE/NICs debt of the MSC arises by virtue of Regulation 80/Section 8, the MSC appealed the Regulation 80/Section 8 on the basis that it was not a MSC and/or on the quantum of the debt, and the FTT rejected the appeal or only partly upheld it, if a transferee appeals under Regulation 97G(3)(a)/Regulation 29G(3)(a) or 97G(3)(b)/Regulation 29G(3)(b), the decision of the Commissioners will clearly be relevant in defending the later appeal.

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Other matters

Enforcement of a debt

Regulation 97K/Regulation 29K set out the application of the Taxes Management Act in terms of recovery of the Specified Amount and associated interest.

Deduction for Specified Amount when computing transferee’s profits

Payment of a specified amount by a person within section 688A(2) ITEPA is not an allowable deduction in calculating the income tax/corporation tax payable against that person’s income. Accordingly, where a transferee pays the Specified Amount and associated interest, DMB should notify the compliance team which should liaise with the office responsible for transferee’s tax affairs.