Directors charging consultancy

Directors charging consultancy

Didn't find your answer?

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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By petersaxton
17th Jan 2012 07:52

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?

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Replying to petersaxton:
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By scvin
18th Jan 2012 16:14

The business is for accounting consultancy / bookkeeping.

The director's self employment is in the same nature of business. The director does not seem to have other clients. It seems all of his work is from the company.

Under self employment he can claim expenses for his mobile phone, use of home as office etc., The Company's registered office is the director's residence and he feels if he were to go on the payroll then he should still be able to claim some of these costs as part of running the business. Would this be acceptable for HMRC purposes and under the Companies Act? His proposal is to go on the payroll and bill for the costs in running the business but it may result in the Company making losses as at present the profits are small.

 

Thanks.

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Man of Kent
By Kent accountant
17th Jan 2012 10:52

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?

 

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By Steve Kesby
17th Jan 2012 11:14

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.

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Man of Kent
By Kent accountant
17th Jan 2012 11:19

IR35

Correct Steve, I'd misread assuming the director had his own company.

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By petersaxton
17th Jan 2012 11:22

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?

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Euan's picture
By Euan MacLennan
17th Jan 2012 11:33

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.

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By Steve Kesby
17th Jan 2012 11:43

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.

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By petersaxton
17th Jan 2012 12:21

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!

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By andy.partridge
18th Jan 2012 16:56

Surprised

I thought this was the very scenario the regulations were designed to outlaw.

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By petersaxton
18th Jan 2012 17:03

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.

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By pauljohnston
20th Jan 2012 11:34

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.

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By petersaxton
20th Jan 2012 11:47

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.

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By petersaxton
20th Jan 2012 11:51

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.

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Nichola Ross Martin
By Nichola Ross Martin
20th Jan 2012 11:57

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

 

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By pauljohnston
20th Jan 2012 12:03

@ 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

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By petersaxton
20th Jan 2012 12:09

@ Paul

What is it that you think is unreasonable on that part of the website?

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By scvin
31st Jan 2012 17:38

Firstly, many thanks to all who have sent in comments. All very interesting and helpful.

It appears the director was previously a consultant providing services to the Company and was self employed at the time and as such has being making the NIC class 2s and 4s. He was essentially billing through the company and was getting full payment of whatever clients he worked on via the company.

He then accepted directorship of the Company and is now concerned that he would not be able to claim the full amount of the fee he is billing. The Company was content on doing this (make no profit on his consultancy as he was providing support at no extra charge to the Company and  marketing the business through PR and his connections.)

In his new capacity if he were to be employed he would therefore earn much less as if he were continuing under self employed basis he could have deducted expenses from his billing. There are others in the business who are self employed contractors on which the business makes marginal, if any profit. The business model is somewhat similar to an agency.

 

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