Share this content
26

Can a director on CIS claim benchmark subsistence?

Works through his own company but uses his own CIS registration

Didn't find your answer?

A bricklayer from Surrey works on various sites in London. He can claim travel as per Horton v Young as he does admin work at home and none of the work sites are headquarters, depots or in any way his base of operations, but not subsistence as he is self employed (it doesn't qualify as W+E). He is paid via CIS.

He incorporates as a company on 1 July. He carries on being paid by his client via their CIS until 1 October when his company starts doing its own CIS returns and pays him via that. He also hires other subbies, pays them under CIS and supervises them. On 1 January he switches from CIS to salary/dividends as his accountant told him he could avoid Class 4 NI and save 9%. He can carry on claiming travel under the temporary workplace rules. He can also claim benchmark subsistence under those rules.

But when from? Is it a) 1 August when he became a director, b) 1 October when he was hired by his company or c) 1 January when he went on the payroll? I reckon it is c). There is a case for a) as he had to attend the sites in his capacity as a director although the company wasn't billing for his work. I think b) is a red herring as he was still self-employed, even though the company started billing for him. However, he also started supervising then on behalf of the company so that may entitle him to travel & sub. 

I don't think there is any requirement for a director to actually be paid in order to claim travel and sub so there is a possible case for a). On the other hand, must sub always go hand in hand with travel? Is it possible to simultaneously claim travel as a sole trader (to save Class 4) and sub as a director? Bear in mind he could always walk to work or get a lift, so there may not even be any travel expenses, yet he could still claim benchmark as there is only an hours rule, not a distance one (although his journey to work must change significantly and mustn't be too close to home).

Any thoughts?

 

Replies (26)

Please login or register to join the discussion.

avatar
By Sandnickel
28th Nov 2020 13:46

He should not have been self employed whilst working for his own company, that could be challenged by HMRC.

I don't really get how that works actually, CIS was deducted from the company and then the company deducted tax from him again?

In answer to the question given I would say you can only legitimately claim employment expenses from 1st Jan.

Thanks (1)
Replying to Sandnickel:
RLI
By lionofludesch
28th Nov 2020 14:46

Sandnickel wrote:

I don't really get how that works actually, CIS was deducted from the company and then the company deducted tax from him again?

Ah - but the company can use the CIS it suffers to pay the CIS it deducts from the director.

Thanks (1)
Replying to lionofludesch:
avatar
By Sandnickel
28th Nov 2020 14:56

Not really thinking about the payment of the tax Lion, if the payment is double taxed then the director receives less in his pocket than if he contracted directly, surely?

I think it could be challenged by HMRC that he shouldn't be self employed during the period he was billed through the company but self employed. What are your thoughts?

Thanks (1)
Replying to Sandnickel:
RLI
By lionofludesch
28th Nov 2020 15:17

Sandnickel wrote:

Not really thinking about the payment of the tax Lion, if the payment is double taxed then the director receives less in his pocket than if he contracted directly, surely?

I think it could be challenged by HMRC that he shouldn't be self employed during the period he was billed through the company but self employed. What are your thoughts?

Company invoices £1000, receives £800, tax £200

Director invoices £1000, receives £800. Company pays tax of £200 deducted from the director, less £200 standing to its credit = £0.

Alternatively ....

Director invoices ultimate customer £1000. Receives the same £800.

Thanks (1)
Replying to lionofludesch:
avatar
By Sandnickel
28th Nov 2020 16:28

I maybe worded this clumsily and am perhaps making assumptions. If the company has NIL cash and NIL profit (as per your scenario) then how does it function? What about insurance, admin etc?

Anyway, I'm glad that I'm not in the minority thinking this is a strange way to operate.

Thanks (1)
Replying to Sandnickel:
RLI
By lionofludesch
28th Nov 2020 16:32

Dunno.

Thanks (1)
Replying to Sandnickel:
By cfield
28th Nov 2020 14:56

Of course he can be self-employed. He is providing a service he was already self employed for. It's the same for me as an accountant. If I wanted, I could charge my company a fee for doing its year end accounts and put that on my tax return as sole trader income.

It is his work as a director that has to go through the payroll. That would include managing the business, so if he took more cash out of the company than the net pay on the CIS returns, that would have to be treated as salary, dividend or loan.

It's quite straightforward. The company suffers CIS on its fees (as it doesn't have gross status yet) and puts them on its payroll software as recoveries. It deducts CIS from its own subbies, including the director up to Dec, and puts them on its returns. The recoveries exceed the deductions so there is a net credit which will come off the corporation tax bill, if there is one.

Thanks (0)
Replying to cfield:
avatar
By Sandnickel
28th Nov 2020 15:11

I disagree, and I think it could easily be challenged by HMRC. Not entirely sure why you would do it either as it kinda defeats the purpose of limited liability without even going into the tax scenarios.

Thanks (1)
Replying to Sandnickel:
avatar
By Paul Crowley
28th Nov 2020 15:29

Concur
Why volunteer for NI self employed
Unless the company is so shakey that director wants all money out in case project goes wrong.

Not sure about the Insolvency view

Thanks (0)
Replying to Sandnickel:
avatar
By Adam12345
28th Nov 2020 15:29

I agree.

An office holder should always be treated as an employee for tax purposes, unless they have a separate self-employed business which is unrelated to the company. For example a self-employed builder providing services to a restaurant that they happen to be a director of. If the limited company is in the same trade, then HMRC would be successful if they challenged in my opinion. As both individual and company are CIS registered, this indicates they are in the same trade.

Thanks (2)
Replying to cfield:
avatar
By AC71
28th Nov 2020 15:33

I think those of us in practice know the limited company CIS deductions work thanks.

Good luck whenever HMRC look into this and why the client is subcontracting to his own company.

He should be an employee. It's quite straightforward.

Thanks (1)
Replying to AC71:
RLI
By lionofludesch
28th Nov 2020 15:42

I have to say, I would never recommend - or even stand for - a director invoicing his own company for work he does. No doubt there's the odd scenario where it would seem reasonable but I can't remember coming across one.

I would also have serious doubts about this business model, particularly from a tax point of view.

Thanks (2)
Replying to lionofludesch:
avatar
By Paul Crowley
28th Nov 2020 15:53

Is is not unusual to find clients thinking this thing up. I have had several over the years.
It is peculiar for the accountant not to disavow them of that view.
If Shakey co is the top then need non shakey co inserted between. then IR35 comes rolling in. Old IR35. Screws the system up if operated correctly by all concerned.

There does seem to be deliberate obfuscation of employment status and IR35 when it is construction, not computers involved.

Thanks (0)
Replying to Paul Crowley:
By cfield
28th Nov 2020 17:09

No mystery on why this happened. It is nothing more than a builder failing to realise that he needed to come off CIS and go on payroll in his own interests, never mind the PAYE rules. He didn't have an accountant at the time to tell him otherwise, just a girlfriend doing her best to keep his books and manage it all.

Well now they do have an accountant who has told them otherwise and they have followed his advice and are now doing it right.

Whether it was right or wrong for him to stay on CIS is immaterial now. What's done is done. As the taxman has benefited from this by getting 20% tax up-front and 9% NI to come, I hardly think it likely they would overturn the arrangement (unless they get greedy and demand 25.8% NI plus penalties, in which case he would have to appeal along the lines mentioned).

Thanks for all the harumphing about his employment status, but what I was really after was some technical views on the effective date for benchmark subsistence. Please focus on that.

Thanks (0)
Replying to cfield:
avatar
By Sandnickel
28th Nov 2020 18:01

Maybe he should ask said accountant as you appear to be saying that isn't you?

I answered your question in the first comment btw. He's either employed or he isn't. If he is performing the work in a self employed capacity how can he claim expenses that are only available if he is employed? Seems pretty clear to me.

Thanks (1)
Replying to Sandnickel:
By cfield
28th Nov 2020 20:02

Sandnickel wrote:

Maybe he should ask said accountant as you appear to be saying that isn't you?

It was a "royal" his ;-)

Directors are subject to the PAYE rules as well as employees, as you and others have been at such great pains to point out. That's why I'm pondering whether the date he was appointed may be relevant for claiming subsistence.

But can subsistence be detached from the associated travel? Can he claim the latter as a sole trader and the former as a director? That's a relevant question too. What does the legislation or case law (if any) say on this, or does it say anything? Whether he should have even been on CIS at the time is incidental.

Thanks (0)
Replying to cfield:
avatar
By Sandnickel
29th Nov 2020 08:40

He wasn't employed by the company to lay bricks. The subsistence claim is presumably related to the brick laying aspect of his work. Still seems pretty clear to me.

Come to think of it he could be seen to have made the company an employment intermediary. Another fine if HMRC ever figure it out.

Thanks (1)
avatar
By Paul Crowley
28th Nov 2020 21:14

'Qualifying conditions
Benchmark scale rates must only be used where all the qualifying conditions are met. The qualifying conditions are:

the travel must be in the performance of an employee’s duties or to a temporary place of work, on a journey that is not substantially ordinary commuting.
the employee should be absent from his normal place of work or home for a continuous period in excess of five hours or ten hours.
the employee should have incurred a cost on a meal (food and drink) after starting the journey and retained appropriate evidence of their expenditure.'

Really would not try to take the whatsit
Did builder actually buy meals and keep receipts
And was he on his own or picking up partner and saying let's eat out
Who paid?
assuming past, if no evidence kept, a forlorn hope upon enquiry

Daft for a person to claim to be an unpaid employee claiming for food, when all money paid is as self employed, who can claim actual real costs, (but not pretend costs)

Suggests that there is no evidence of any meals at all. Director as employee must have evidence of meals as the employee.

Thanks (0)
Replying to Paul Crowley:
By cfield
28th Nov 2020 22:09

I know what the benchmark rules are thanks very much. You don't have to keep receipts now actually, just evidence the rules were complied with. A daily log with shops/purchases fits the bill. As it happens, he bought loads of snacks/drinks on the company card so no "pretend costs".

We'll probably go for c) anyway just to be on the safe side.

Thanks (0)
Replying to cfield:
avatar
By Paul Crowley
28th Nov 2020 23:50

I disagree
Employee does
Employer does not need a system of checking, but if a director only employee?

'the employee should have incurred a cost on a meal (food and drink) after starting the journey and retained appropriate evidence of their expenditure.'

Thanks (0)
avatar
By AC71
29th Nov 2020 12:17

I'm not really sure why anybody is now answering. Any helpful response thus far has been met with a disdainful attitude. If the OP thinks he knows the answer, why ask in the first place.

Thanks (2)
Replying to AC71:
By cfield
29th Nov 2020 12:41

Because people aren't sticking to the question, that's why. I didn't ask for their thoughts on the CIS issue, just on the narrow technical points raised in my OP.

The CIS issue is done and dusted. He's on payroll now and the overlap was just 3 months. No point in unravelling all that. The question boiled down to whether he can claim travel as a subbie and lunch as a director, given that he was managing the business on-site. It was just the finger wagging I was disdainful of (which you see far too much of on AWeb by the way), not the helpful answers.

I might add that I give lots of help and advice on this site myself and receive many thanks for it, mainly because I stick to the point and refrain from finger wagging and patronising remarks. I expect the same in return.

Thanks (2)
Replying to cfield:
avatar
By Sandnickel
29th Nov 2020 13:50

I just want to point out that I answered your question on my first post.

I then answered it again, and then again.

At no point did I wag my finger, I did point out that the way this was set up could be challenged by HMRC (which is true). I didn't accuse you (or the client) of any wrong doing, I thought I was being helpful to be honest.

Thanks (1)
Replying to Sandnickel:
By cfield
29th Nov 2020 20:47

Yes you did give me an answer and actually I agree with it, as per my OP, especially as he shouldn't really have stayed on CIS. Best not to push our luck on that front as it could undermine his position should the overlap period ever be challenged.

Highly unlikely it would though just for 3 months. Even if there was a PAYE visit they tend to be highly formulaic. They probably wouldn't choose a CIS return with his name on it, or even spot it if they did. I've told them not to worry too much.

It was just a technical query that occurred to me on the benchmark rules, whether he could claim subsistence in his role as a director whilst still on CIS. I was hoping I might get a technically framed answer one way or the other, but I guess that was a bit of a high hope.

Thanks (0)
Replying to cfield:
avatar
By Paul Crowley
29th Nov 2020 14:14

By cfield
28th Nov 2020 09:59
'All this talk about not hiring until verified and deducting 30%. What planet are they on? Have they ever tried working with builders? You could lecture them until the cows come home, they won't take any notice. Same with mileage logs. They just will not do them. At the end of the day, you're the expert. Just make the system work by adapting it to the situation.'

from
CIS Verification

Just a bit of finger wagging
Ignore the rules
Builders do not follow them
fix it yourself, and hide the problem

Thanks (0)
avatar
By Paul Crowley
29th Nov 2020 14:22

As Cheshire knows
I tend to press a few thanks buttons when Ops forget
All thanks so far are mine

Thanks (1)
Share this content