Company ceased trading and the sole Director received a payment of £17,500.00 for loss of Office. The following week he forms another company (he becomes the sole Director)to take over the contract from the previous Company. The Revenue has challenged the payment under S148 ICTA 1988.They have requested documentary evidence to support the contention that it was a redundancy payment. They have stated a number of conditions must be met to qualify under Section 148.
Can anyone explain what needs to be done
Malcolm McFarlane
Malcolm McFarlane
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Is TUPE an issue except to strengthen HMRC's case?
I agree with Andrew's posting of 27.10.05 basically.
I am not sure that TUPE affects issues given the week's break, except if it did, HMRC would surely argue that there has been no loss.
I would be surprised if the director had a separate employment contract. He might though have underlying employment rights.
However, the question is what did he lose? HMRC might argue that the payment was actually some form of pay in lieu of notice, with all the complications that entails.Did he lose an employment, did he lose an office (or did he simply resign rather than being pushed). When was the new company set up and when did he become a director. If he got a new job right way, why did he get more redundancy compensation than the statutory amount. As the controlling person, the company would know he had another job and lost nothing. Even arguing it is ex-gratia to mark the termination of the employment would be hard to sustain.I think HMRC will dig in their heels. They should chase PAYE. If the company cannot pay, they may seek payment from him under SI 2003/2682 regulation 72(4) or 80(4)
Andrew, I am the old "guru" from the wet or frozen North who knew you years ago. I am still on my old phone number
They may not do, Neil
TUPE isn't 100% guaranteed:
(i) client is clearly an office-holder, but we don't know if he was an employee either before or after the changes.
(ii)we don't know enough about the contract being taken over - one of the standard exclusions from TUPE is the transfer of a contract to provide goods or services where this does not involve the transfer of a business or part of a business.
However, I agree with you the likelihood is that TUPE will apply. The intervening week between folding company 1 and forming company 2 may even have been a misguided attempt to make it look as though there was no T/U...
EDIT: This is, of course, a reply to Neil E - Neil W posted his comment (with which I obviously concur) while I was typing!
What needs to be done...
...is to explain to the director that he was "trying it on" and has failed.
From the circumstances described, this appears to be nothing more than a cynical attempt to manipulate the legislation in order to obtain an inappropriate tax advantage. The £30,000 exemption given by ICTA s.148 (ITEPA s.403) is aimed at genuine terminations of employments, not for phoenix jobs.
It might be a good start for the director to ask himself precisely how he "lost his office" and needed "compensation" when (i) he engineered the dissolution of his first company and (ii) immediately replaced company, contract and job on essentially identical terms. If he can persuade an unbiased listener that anything more than one week's loss of salary has been genuinely "lost", then he might be able to argue a case against the Revenue. Otherwise, he should accept with good grace that his scam has been rumbled, and pay the tax.
TUPE again
I agree that the TUPE regs are a bit of a minefield. They don't relate to office holders, per se, but if he were a full time working director he could not be regarded as solely an office holder. Some of his remuneration may be regarded as relating to his duties as a director, but is is obvious that most of it would be as an employee of the company. Agreeing the split might be tricky, I accept.
The reason for my (brief)posting was a 'heads up' to remind us that the tax statutes are not the only thing that applies in this kind of situation, rather than a definitive view of the action of TUPE.