Just want to make sure I advise the client correctly...
A C.I.C. Company limited by guarantee has 3 Directors. Instead of paying themselves under PAYE they have declared themselves 'self employed' and invoiced the company for their services, declaring this income on their personal self assessments.
My opinion is that this is not in the spirit of the c.i.c. And that all payments to the directors must be under PAYE .. Am I correct or am I missing something?
Thanks
Replies (11)
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You are correct.
Directors are office holders and automatically fall within employment tax legislation via s.5 ITEPA.
This would be spotted by a country mile by HMRC and it would be very costly to the CIC co
Not automatically
You are correct.
Directors are office holders and automatically fall within employment tax legislation via s.5 ITEPA.
This would be spotted by a country mile by HMRC and it would be very costly to the CIC co
But only for their services as director. It is perfectly possible for them to provide other services and for those services to be as a self employed contractor providing that is the facts of the relationship.
Yes but caution is definitely required
But only for their services as director. It is perfectly possible for them to provide other services and for those services to be as a self employed contractor providing that is the facts of the relationship.
Agreed although it is much harder to achieve this than, say, 5 or 10 years ago. Nowadays, there has to be abslutely no link to the directorship and the extra services for HMRC to even think about accepting the arrangements, e.g. the director role is one of Finance Director but the extra services are for landscaping the new office build. This is a slightly obscure example but you get the point.
If there is any sniff of the the extra services being related to the director's normal duties and responsibilities as a director of the company, then avoiding PAYE on the "extras" will likely be unsuccesful, even if there is a consultancy contract in place for these "extra" services - this was the tactic used many years ago which HMRC turned a blind eye to but as I said though, things are different nowadays. An example around this may be Finance Director providing management or accountancy services separately. Now, it could be argued that an FD's role would normally include such services anyway, and so I would fully expect HMRC to challenge that these "extra" services are nothing other than services related to the office of employment and so fall within PAYE and NI legislation.
Self Employed Company Directors
Simply by doing what they appear to be doing would not work and HMRC would win the argument on PAYE.
However, there is a mechanism whereby the desired result can be achieved. If you would like more information please let me have your details and I will forward information.
Company Director - Self employed?
There is a perfectly legal way of achieving the desired result by splitting the directors responsibilities.
The duties under the Companies Act are paid under PAYE, but need only reflect the salary for those duties - say - £5,000 per annum.
Other services that the director provides i.e. marketing, business strategy, specialist production knowledge etc etc can be provided under a seperate agreement.
If anyone would like details of how this arrangement works in practice please contact me directly.