The 2 directors of company A are leaving to form company B, which will provide management services to company A. Can they still take advantage of a £30k non-taxable redundancy payment?
They will remain as statutory directors for company A (as they are the only statutory directors) but will be taken off A's payroll & issued with P45s. Company B will be owned by the two directors and their spouses in equal shareholdings (company A is owned equally by the two directors.) Company B will be responsible for providing management and marketing services for company A.
Sorry for the long-winded nature of the question, but can the two directors still claim the £30k tax-free payment upon their leaving company A?
Thanks for your time.
Andy
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The answer is almost certainly -'no!'
The £30K tax free sum is what is not taxable when everything else has been tested.. So the first simple question is- can the Revenue tax the payment under some other Sch E head? The answer here seems to be yes-it is pay.It derives from the employent.
To borow an Americanism-you haven't got to first base.
If the answer were no, and not otherwise , then the whole payment except the famous £30K is usually taxable.
As a final point, on this occasion I suspect that the Revenue would argue, if the 'golden handshake' argument were pursued, that the payment is not "wholly and exclusively" for the purpose of the company's business, and so not allowable for corporation tax.
They might also argue , if you pursue the 'golden handshake' argument, that the payment is a distribution under ICTa s.209(4).
If the Revenue win Arctic Systems in the House of Lords- and they haven't even got consent to bring the case from the Apellate Committee yet, I would have thought there is a serious risk that they would challenge the wive's pay in Company B in future.