In Christianuyi Limited & Others v HMRC [2016] TC05045 a Managed Service Company (MSC) Provider was found to be ‘involved’ with the taxpayers' personal service companies.  This is the first time the MSC rules have been considered by the Courts since their introduction in 2007.

  • In 2007 the proposed MSC legislation prompted the i4 group, including Costelloe Building Services Limited (CBS), to develop a new product for use by personal service companies (PSCs).
  • CBS assisted in setting up these PSCs, each of which were solely owned by an individual client who also acted as director.
  • Most PSCs used the address of CBS as their registered office and another group company as the company secretary.
  • Amounts received from third parties for clients’ work were paid into special bank accounts which CBS set up.
  • CBS made deductions from these bank accounts for their fees and taxes.
  • Initially a fixed fee was charged by CBS and then an annual fee. However, CBS only charged fees when the PSC was paid.
  • Amounts were deducted from PSC accounts in respect of taxes well in advance of the due date and held in bank accounts of CBS prior to being paid on to HMRC.
  • The vast majority of clients opted to be paid a minimum wage by their company.  The balance of funds in the PSC account was then transferred to their private bank accounts as dividends.

It was accepted that the PSCs were MSCs and that CBS was an MSC Provider.  Therefore the question considered by the First Tier Tribunal (FTT) was whether CBS was ‘involved’ with the PSCs for the purposes of the MSC rules.  

The taxpayers did not seek to claim the statutory exemption for providing legal or accountancy services in a professional capacity.

The FTT found that CBS:

1.  Benefitted financially on an ongoing basis from the provision of services by their clients. 

  • When a fixed fee was charged this was clearly a percentage of the individual’s income.
  • Even when CBS moved to an annual fee this was only charged when a payment was received by the client and was not pursued when no work was done.
  • CBS also benefited financially from interest earned on amounts deducted for taxes but not paid over to HMRC straight away.

2.  Controlled or influenced the way in which payments were made to each individual taxpayer:

  • CBS determined that surplus funds were paid by way of a dividend.
  • There was no evidence to show that the taxpayers had any say in the amount of dividend paid.
  • There was no evidence that interim dividends had been declared or that the shareholders approved any final dividend.

3.  Influenced the PSCs’ finances and activities by

  • Persuading clients to use a particular bank account
  • Accelerating the payment of their taxes.
  • Withdrawing amounts from accounts prior to having a direct debit mandate in place.

As a result CBS was 'involved' with the PSCs and the MSC rules applied.


This is the first case to come before the FTT to consider the MSC rules. We can see that HMRC is investigating potential MSCs (see case summaries in Managed Service Companies (subscriber content) note) and there are likely to be more cases given relative popularity of such schemes in the past.  CBS set up 1,000 new companies under these arrangements of which only 5 were the subject of this particular appeal.

It is slightly disappointing that the case didn’t cover the exemption for providing accounting or legal service in a professional capacity.  We will therefore have to wait a little longer to see how broadly this will be interpreted in practice.


31/01/2018: The Upper Tribunal dismissed the appeal. See here for the decision.

01/08/16: The taxpayer has been given leave to appeal. 


Case reference: Christianuyi Limited & Others v HMRC [2016] TC05045

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