Once in a while I find myself giving the same advice I have always given, and then wondering afterwards if I am missing something ...
A director (and majority shareholder) of a new building company wants to work as a subcontractor to his own company, rather than be paid under PAYE (he is a qualified craftsman and has worked as a sole trader for many years). I have told him he can't do this.
Is there ever a situation in which a director could contract on a self-employed basis to his own company? For example, could he be paid a salary for fulfilling his duties as a director, but as a CIS subcontractor for chargeable work done on contracts?
Nigel Harris
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Different roles
Nigel,
Your question is well timed. I've just finished writing an article on this subject.
In the circumstances you describe it's entirely possible to act in a self-employed capacity for the business (company). Here is a little more information on the subject.
The role as director is separate from the trade as a builder. You can therefore consider each activity in isolation and remunerate them accordingly. The directors fees etc will remain chargeable to tax and NICs under the employment rules, and PAYE must be applied.
As far as the trade is concerned, any work should be billed to the company at a commercial rate, and only for work done. Avoid payment of a regular retainer. Although a retainer in the context of the contractor (director) acting as site manager on a job by job basis would be OK.
The usual tests as to whether the role is as an employee or self employed worker apply. That's far to big a subject to cover in this comment. But, I suspect you're already aware of the issues.
Bearing in mind the director would control both sides of the arrangement it ought to be fairly easy for the company to draw up a contract for the work on genuine self-employed terms that will apply both in word and in practice. If the company already has a standard contract for third party workers this could be used for the director providing; it's suitable, and it's been properly drawn up in the first place.
Provided the arrangement is carried-out on a proper self-employed basis the Revenue will not object to it.
Tony Court
Editor-in-Chief
Tips and Advice Tax
Perfectly legal
There is no legal reason why this can't happen. Convincing HMRC is a different matter. I have had clients do this before but a long time ago (been away from practice for a lot of years).
The role of director is not the same as the role as an employed or self employed craftsman, so they are separate legal arrangements.
HMRC will take a very dim view on this - one alternative is to appoint trusted friend/spouse as company director. Your client could then bill the company on a self-employed basis - assuming that he/she has resigned from your directorship.