ESM3680 - Managed Service Companies (MSC): Appendix E: Flow Chart: Transfer of Income Tax (PAYE) and Class 1 National Insurance contributions (NICs) of Managed Service Companies

Step 1: MSC PAYE/NICs debt established.

  • Payment received in full. No further action necessary. End of process.
  • Payment not received - go to step 2.

Step 2: Apply to MSC for payment (even if you believe the company has no assets) - go to step 3.

Step 3:

  • Company fails to respond or responds saying it cannot pay.

Ascertain asset position using information available to Dept. See below.

  • Company in liquidation/Receivership/Administration

Ascertain likelihood of debt being settled in full and by whom. See below.

  • Company has assets

Recover debt in normal way but have regard to time-limits for transferring the debt if it proves irrecoverable from the company. Return to step 1.

  • Company offers settlement by instalments

Judge each case on its merits but have regard to time-limits for transferring the debt if it proves irrecoverable from the company. See below.

  • Debt will not/is unlikely to be paid within 3 months - Go to step 4

Step 4: Identify all persons within section 688A(2) ITEPA to whom the company’s debt might be transferred.

Ascertain names and addresses of persons within section 688A(2). Liaise with the SCU where the debt was identified as a result of compliance activity. Go to step 5.

Step 5: Ascertain potential transferees’ ability to pay the MSC debt:

  • Use information available to the Department and commercially. Liaise with appropriate sections within Department (e.g. DMB).
  • If there is evidence that persons in the first two categories have the financial ability to pay the debt (and any other associated debts) restrict enquiries regarding persons in the third category accordingly.
  • If there is evidence that persons in the first two categories do not have the ability to pay (or their assets are alienated).
  • Remember that there are strict time-limits for the issue of Transfer of Debt Notices, and actions to determine potential transferees and their ability to pay should be undertaken as quickly as possible.

Go to step 6.

Step 6: Persons in the third category

  • Only the Employment Status & Intermediaries (ES&I) Team in liaison with IPD NICs Technical team should seek to determine whether a person is within the third category.

  • Where it is considered that they are, also consider:

  • the period of time in terms of the period the debt relates to, that they were a person in the third category, and
  • the degree and extent to which they directly or indirectly encouraged or were actively involved in the provision by the MSC of the services of the individual.

Go to step 7.

Step 7: Submissions to Debt Transfer team:

  • Submit the case to Debt Transfer team for consideration of the issue of a Transfer of Debt Notice. Include the information set out at ESM3635 at step 8. Go to step 8.

Step 8: Review by Debt Transfer Team

Review the case in accordance with sections ESM3635 at step 9. If there are any areas of doubt, refer to the referring office for clarification.

  • Satisfy yourself that the debt is irrecoverable from the MSC within a reasonable period.
  • If satisfied, consider to whom the debt should be transferred.
  • Have regard to the order in which debts should be transferred, but also have regard to the time-limits for issuing Transfer Notices to persons in the first two categories.
  • In all cases an officer (not below HO grade) must make a Direction, see ESM3655 Appendix A, that the debt is irrecoverable from the MSC within a reasonable period.
  • In all cases where a Transfer Notice is issued to a person in the third category, an officer (not below HO grade) must certify that the debt is irrecoverable from persons in the first two categories - see ESM3655 stencil B.

Go to step 9.

Step 9: Issue of a Transfer Notice by the ES&I team

  • Issue a Transfer Notice to the persons identified as being appropriate in ESM3660 at steps 5 to 9, Appendix C. Note that the contents of the Transfer Notice must conform precisely to the legislation. End of process.
  • The ES&I team will provide an update of Notices issued to DMB. End of process.
  • Withdrawal of Transfer Notice by Debt Transfer Team - go to step 14.

Step 10: Appeal received by the ES&I team?

  • Yes - follow guidance at ESM3635, step 11. End of process.

If appeal is upheld by the Tribunal, go to ESM3635 at step 15. End of process.

  • No - go to step 11.

Step 11: Payment received by DMB?

  • Yes - follow guidance at ESM3635, step 12. End of process.

  • Where excess payments are received - go to Step 13.

  • Where payment in full is received, the Debt Transfer Team should go to ESM3635 at step 15. End of process.

  • No - go to step 12.

Step 12: Total Specified Amount cannot be recovered:

  • Where the total Specified Amount cannot be recovered from persons in the first category, refer to the Debt Transfer Team in accordance with ESM3635 at step 13. End of process.
  • Where the total Specified Amount cannot be recovered from persons in the first two categories, refer to the Debt Transfer Team in accordance with ESM3635 at step 13. End of process.

Step 13: Repayments of excess amounts by DMB

  • Where the amount received from persons to whom Transfer Notices have been issued exceeds the Specified Amount plus interest due, repay the difference in accordance with the guidance at ESM3635. End of process.

Step 14: Withdrawal of Transfer Notice by Debt Transfer Team

  • If the Tribunal uphold an appeal, withdraw the Transfer Notice in respect of the appellant in accordance with section 5.27 of the guidance. End of process.
  • If DMB notify that the debt has been paid in full (including interest), withdraw the Transfer Notice in respect of those persons who did not pay. End of process.
  • Any person who made payment which fully or partially satisfied the debt should not have the Transfer Notice withdrawn. End of process.