Does a director have to be on the payroll or can they charge consultancy and be taxed under SA as self employed?
What, if any, are the implications?
Many thanks.
Replies (18)
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Depends
A director doesn't have to be on the payroll.
Are they doing work that they do in a self employed business?
If they are genuinely self employed they can invoice.
What self employment do they do?
Do they have clients?
Sounds like personal services
Peter Saxon's questions will be the same HMRC pose if they pick this one up on a sweep.
If its his only source of income looks like IR35 would apply.
Are other directors in the business doing something similar?
Directors
A director is an "office" in law, and all remuneration of an "office holder" is taxable as employment income under PAYE.
To the extent that a director has other earnings from a company that are not to remunerate him in respect of the office of director, it is possible for them to provided on a self-employed basis under a contract for services, rather than under an employee's contract of service.
It would be highly likely to be challenged by HMRC, and the facts would need to support the treatment.
Whether or not the director is otherwise in business on his own account is largely an irrelevance. The (explicit or implicit) contractual relationship between the parties will guide the issue. Unless the director is providing services the company would otherwise engage an external consultant to provide, I'd be dubious about your prospects of success with this.
IR35 isn't relevant unless the director provides his services via another intermediary entity.
Bookkeeping services, for example
Are you saying that it is irrelevant whether a director was a self employed accountant/bookkeeper if they wanted to invoice the company for bookkeeping work?
Bookkeeping
It is a statutory duty of the company under s.386 CA 2006 to keep adequate accounting records, enforceable by imprisonment and/or fines on the directors under s.387, so I think you may have picked an example where it could be said that bookkeeping is a director's duty which must be remunerated under PAYE.
Yes Peter
The existence of the separate bookkeeping self-employment is not relevant of itself.
If the arrangement is "here's a bundle of bank statements, cheque stubs, debit card slips, invoices, etc., go away and write us up some books", then it's probably self-employment. That is why he'd be self-employed with respect to his other bookkeeping clients.
On the other hand, notwithstanding that he has a self-employed bookkeeping source, if the arrangement is "sit over there every Thursday and write up the books using that computer and we'll pay you £60 per week", then it's probably employment.
It's all about the actual relationship between the two parties. If it's not completely clear from the relationship, the existence of the self-employed source may swing it though.
Is it really like that?
I wonder how the directors deal with health and safety, employment issues, etc.?
I agree I could have chosen a better example though!
What's the problem?
It's pretty obvious that the director is not self employed.
The director can still claim for the expenses of running the company.
The director can be employed by the company for work done. The only genuine problem I can see is NIC which is to be expected.
I would suggest
that a director is not an employee but an officer of the company. He should be paid for his duties of a director. If he supplies services to the company then these can be supplied as a contractor.
AS long as proper contracts were in place I feel that HMRC would have to accept thr position.
Other clients
"If he supplies services to the company then these can be supplied as a contractor.
AS long as proper contracts were in place I feel that HMRC would have to accept thr position."
Even if he doesn't have any other clients? I know this isn't all that matters nor is it definitive but it seems important.
Using this I would consider the work employment
http://www.hmrc.gov.uk/employment-status/index.htm#1
Looking through the list and taking account of sham arguments for particular items I would judge the director to be employed.
Use of home licence instead?
You can operate as a self-employed consultant in tandem, but you will need to have established the self-employed business, and have contracts which ideally cover the office of directorship and a separate one for self-employment.
HMRC would object if they feel that this is sham, and if it is not a sham, and this is run on a commercial basis then your man is going to be liable for Class 2 and 4 NICs on his profits from self-employment. Is that really what you want?
Might it be simpler for the company to run the director's mobile phone contract and then have a home working agreement, or a licence agreement so that the company can licence office space from the director. Just a thought.
Virtual Tax Support for accountants: www.rossmartin.co.uk
@ Peter
Please bear in mind that HMRC's website is only its opinion. I should have said it would be wise to have 2 or more directors