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Can directors honorarium be outside PAYE?

Honorarium for Non-exec with no contracted previously treated as outside PAYE?

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A client new to us has run a PAYE scheme for several years for staff and active directors, but it has had a non-exec type director who has no contract of employment and is paid £3000p.a. They have always excluded him from PAYE scheme on the grounds he is not an employee.  

Have looked at HMRC's guidance and it repeatedly makes references to being an employee, but the only alternative seems to be self-employed.  It also says helpfully that you may be an employee for tax purposes but not in law, which I know is true, but none of the cases I can find on that are relevant in this circumstance.  Does anyone have any guidance a to where to look for a definitive answer?

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Replying to Wanderer:
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By timothyvogel
13th Apr 2021 11:46

This is I think the nub of the problem. it clearly states they can be employees or not. I think it is fairly clear they are not employees, but the question is are they still PAYE, because the PAYE guidance only gives the 2 options, employee or self-employed, this guidance gives a third.

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Replying to timothyvogel:
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By Wanderer
13th Apr 2021 11:51

Quote:
... the only payment they get is a voluntary payment (honorarium), regardless of the work they do - tax and National Insurance are deducted by the appointing body
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Replying to timothyvogel:
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By Tax Dragon
13th Apr 2021 11:50

But that's where your knowledge of tax law kicks in, isn't it Timothy?

See eg s5 ITEPA 2003.

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Replying to Tax Dragon:
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By timothyvogel
13th Apr 2021 15:26

That does seem fairly clear. Thanks. But then I read the community post given below from HMRC contradicts the law. I could say I am surprised, but HMRC lacking consitancyis, not a new thing. Many thanks

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By Paul Crowley
13th Apr 2021 10:44

If my client I would recommend in writing that the £3000 is put on an RTI
HMRC tend to look to company for lost tax, grossed up

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By Truthsayer
13th Apr 2021 10:58

Just google it. You will find that all sources that know what they are talking about will say it comes under PAYE. Many sources that don't know what they are talking about will say that if you call a fee an honorarium, it magics tax away. I suspect the director himself said it was not under PAYE, and the company was daft enough to take his work for it.

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Replying to Truthsayer:
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By Paul Crowley
13th Apr 2021 11:48

Similar issue of 'hororarium' tends to come up with clubs and committees

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Replying to Truthsayer:
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By timothyvogel
13th Apr 2021 11:48

That Is my problem. I have Googled it, and at least one major national firm of tax advisors say not PAYE, and no one seems to quote any definitive guidance either way.

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Replying to timothyvogel:
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By Paul Crowley
13th Apr 2021 12:05

https://community.hmrc.gov.uk/forums/customerforums/pt/f216eaa7-85cd-e91...

This office seems to be self employment per HMRC

Or does it?

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By Calculatorboy
13th Apr 2021 11:15

Its still regular pay, albeit annually , in absence of any other information its paye

Never listen to your clients, take everything they say with a pinch of salt ,

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Replying to Calculatorboy:
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By Tax Dragon
13th Apr 2021 23:07

See, if you're going to put your comments on hold for 11 hours (or however long it was), I think you should have the decency to post in pink, so people know that's what's happened.

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By paul.benny
13th Apr 2021 12:23

As Tax Dragon has pointed out, ITEPA s5 states that all the employment income provisions apply equally to office-holders unless specifically exempted. I'm not aware of any such exemptions.

On that basis, an honorarium is not outside scope of PAYE.

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Replying to paul.benny:
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By Hugo Fair
13th Apr 2021 12:43

+1 (and see https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim02205 for the NIC implications).
[It's worth noting that those who disagree may be remembering the opposite guidance that was withdrawn in April 2003].

I've always treated any payments (however they're labelled) to non-execs as needing to be processed under PAYE (and reported under RTI obviously) ... with only one exception (as advised to me by HMRC in the early days of RTI).

That exception is where the non-exec is only paid Expenses (all of which have been checked to be non-taxable) ... since, in their words, HMRC didn't "want our records being filled with non-real employments".

[Please note that in this context 'employment' means an 'employment record' in HMRC's systems which, for instance, includes an IR35 deemed employment ... so does not have the same meaning as almost anywhere else!]

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By SteveHa
13th Apr 2021 13:37

What exactly is ambiguous about TD's reply? The legislation is clear.

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Replying to SteveHa:
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By paul.benny
13th Apr 2021 15:44

The OP seems to have found some contradictions - although the only one he has referenced is posted by someone else and refers to a small sum that (as the reference says) would fall within Trading Allowance.

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Replying to paul.benny:
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By Tax Dragon
13th Apr 2021 15:59

But there is no confusion or difficulty presented by the situation described to us in the OP. It's taxable under ITEPA (i.e. PAYE-able) and trading allowance is not in point. (Of course, it's possible the tax is collected under PAYE elsewhere. That's how tax codes can work. But that wasn't the question.)

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Replying to paul.benny:
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By Paul Crowley
13th Apr 2021 16:37

As the poster I consider the HMRC item to be wrong and inconsistent, top reply self employed then second comment says other income
Is the secretary indeed correctly self employed or has HMRC person read secretary as self employed secretarial services but not an office holder?
He might even have a string of positions within the same organisation

But a useful reference if defending the undefendable.

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By Hugo Fair
13th Apr 2021 16:36

"They have always excluded him from PAYE scheme on the grounds he is not an employee."
So they would exclude someone who falls into IR35 from PAYE? ... as the Off-Payroll Worker rules explicitly say the worker is not an employee (although they've had to invent the spurious label of 'deemed employee' when trying to explain its operation)!

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By sammerchant
14th Apr 2021 13:04

For pedants such as myself, it is amusing to note that HMRC's website https://community.hmrc.gov.uk/forums/customerforums/pt/f216eaa7-85cd-e91..., provided by Paul Crowley, lists it as 'honororium' and not honorarium, the more accepted version!

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