Directors personal tax return fee

Which approach do you have in your firm?

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Hi, I have been working in a very small practice for years and recently it has been taken over by a larger firm.

In my original practice if we would be preparing a company director's tax return and the company is also a client, we would invoice a director separatrely for his personal tax return to avoid BIK, P11Ds, etc. A director would pay this bill in his own right separately from the company's invoice.

In the new firm the tax return work is invoiced to the company together with the other work we do for the company and the director's tax return proportion is disallowed in CT return. No BIK reported or dir loan is used.

Just curious which approach used in your accountancy practice? 

Replies (32)

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By Paul Crowley
03rd Jun 2024 22:30

The new firm policy is the worst of all the options.
Do it for free could be an option, provided they are simple.
Charge the company and BIK the gross of VAT, but claim for CT.
Let the company pay, but transfer the fee to directors' loan. Slight VAT complication.
Keep the old firm's policy of separate fee. The easiest to defend from all challenges and errors.

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By kim.shaw-and-co.com
04th Jun 2024 00:17

How do they explain the decision to disallow fees in the CT return in the event of a CT enquiry ? Just curious ... !

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Replying to kim.shaw-and-co.com:
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By Tryingtodothingsright
04th Jun 2024 07:51

Not the company’s expense, it’s the directors expense

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Replying to Tryingtodothingsright:
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By Paul Crowley
04th Jun 2024 10:56

Then it is a BIK
Deducting on CT has no meaning at all in this context

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Replying to Paul Crowley:
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By kim.shaw-and-co.com
04th Jun 2024 14:33

Paul Crowley wrote:

Then it is a BIK
Deducting on CT has no meaning at all in this context

Precisely ... whether it gives rise to further earnings or ends up taxed as a BIK (through a PSA or on a P11D) it's very likely going to be a deductible expense of the employer because in either of those cases a deduction would typically arise.

If it gets charged to a loan account as a personal expense there won't be anything in the P&L to add back in the first place !

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By Tax Dragon
04th Jun 2024 05:58

It reads as if you have only one director client.

HMRC [correctly] point out somewhere that adding back is not a valid alternative.

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By johnthegood
04th Jun 2024 08:20

we do all the Directors returns for free - Obvs!

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By ireallyshouldknowthisbut
04th Jun 2024 09:24

I do mine for free.

Unless its more complicated, and its paid by the director.

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By Justin Bryant
04th Jun 2024 10:15

I've always been mystified how adding back such expenses in the CT comp. magics away the IT/NIC liability, which should arise under s62 (as the ER pays a pecuniary liability of an employee/director) and not the benefits code.
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim00580

Why not just agree contractually between accounting firm and employer that it's £50 (incl. VAT) (when done with CT600 and accounts etc.) and then it should be fine as a trivial benefit (with VAT recovered if billed to company):
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21864

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Replying to Justin Bryant:
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By Paul Crowley
04th Jun 2024 11:36

That's the way to do it.

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Replying to Paul Crowley:
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By Tax Dragon
06th Jun 2024 06:15

That's your six.

And it's only June.

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Replying to Tax Dragon:
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By FactChecker
06th Jun 2024 15:12

I'm sure he'll be pleased as Punch.

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Replying to Justin Bryant:
By Ruddles
04th Jun 2024 16:21

Justin Bryant wrote:
I've always been mystified how adding back such expenses in the CT comp. magics away the IT/NIC liability, which should arise under s62 (as the ER pays a pecuniary liability of an employee/director) and not the benefits code.

Agree on the first part, disagree on the second part (assuming we are talking about the usual scenario where the accountant contracts with the company to prepare directors' tax returns). Unless you can point to legislation or case law that says I'm wrong.

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Replying to Ruddles:
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By kim.shaw-and-co.com
04th Jun 2024 19:46

Ruddles wrote:

Unless you can point to legislation or case law that says I'm wrong.

Touché lol.

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Replying to kim.shaw-and-co.com:
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By Justin Bryant
06th Jun 2024 09:56

Not really and that just shows that you also have not understood the point here (although well done on a rare, non-verbose comment).

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Replying to Justin Bryant:
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By kim.shaw-and-co.com
06th Jun 2024 11:51

Justin Bryant wrote:

Not really and that just shows that you also have not understood the point here (although well done on a rare, non-verbose comment).

You haven't understood the joke. Perhaps if it'd typed "kerboom-tish !" but never mind ... carry on !

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Replying to kim.shaw-and-co.com:
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By Justin Bryant
06th Jun 2024 15:34

If you really think that (either that that comment is a great joke or that I didn't get the fact it was a pathetic failed attempt at humour) then there is sadly no hope for you.

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Replying to Justin Bryant:
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By kim.shaw-and-co.com
06th Jun 2024 17:30

Justin Bryant wrote:

If you really think that (either that that comment is a great joke or that I didn't get the fact it was a pathetic failed attempt at humour) then there is sadly no hope for you.

Well it amused some of us, admittedly not you but hey ho - can't please everyone !

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By Paul Crowley
04th Jun 2024 17:39

Simple question
How much less will the company fees be if director chooses to file his own tax return?
Zero would be my reply.

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Replying to Paul Crowley:
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By Justin Bryant
04th Jun 2024 17:44

In my above example there is a LoE addressed to both the company and the relevant director(s) (and it would state the fee is recoverable from either), so it would be £50 (incl VAT) less in that event.

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Replying to Justin Bryant:
By Ruddles
04th Jun 2024 19:04

We try to keep things simple, with each client having their own LoE.

Each to their own, though.

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Replying to Ruddles:
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By kim.shaw-and-co.com
05th Jun 2024 23:45

Ruddles wrote:

We try to keep things simple, with each client having their own LoE.

Each to their own, though.

I get both - a service level agreement covering directors' tax and a personal LoE. That way if a director suddenly discloses millions in offshore assets and a load of complex funds to analyze they can be charged for extra time if the employer doesn't want to pay to cover return implications of all that.

If the company wants a figure put on things for internal budgeting etc. then whatever figure that is goes on the P11Ds unless it goes in the PSA instead. Without any figure or optional add-on there's more flexibility. Of course, since tax enquiry insurance of a company often extends to directors' returns there is always the potential for enquiry costs to wind up on a P11D even if they are indemnified by an employer-funded policy. A very sticky argument to have in a protracted enquiry with huge costs so I'm much happier if the directors take out their own !

You'll find in practice HMRC will not accept there is no taxable BIK where companies meet the tax return costs in certain circumstances. For example tax-equalized inbounds within an Appendix 6 Agreement whose (UK and sometimes home country tax) return is prepared at the employer's expense.

In those cases, they indicate a figure they would "not enquire into" 'per capita' if there is a service-level agreement with the employer for a large number of employees. For example they agreed back in 2011 to accept figures of £650 for returns in both countries and £250 for UK returns :

https://webarchive.nationalarchives.gov.uk/ukgwa/20130403021903/http://w...

Since then those sums to my knowledge haven't been updated. The point is really a degree of apportionment was generally conceded by larger firms in those cases.

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Replying to kim.shaw-and-co.com:
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By Tax Dragon
06th Jun 2024 06:19

Re insurance, is it the premium (à la health cover) or the enquiry cost?

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Replying to Tax Dragon:
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By kim.shaw-and-co.com
06th Jun 2024 11:45

Tax Dragon wrote:

Re insurance, is it the premium (à la health cover) or the enquiry cost?

That's the question ... there's usually no marginal cash cost to the company in respect of their own 'multi-taxes' premium and it's often just added back for CT.

How many companies declare a pro-rata BIK for fee protection insurance premium against directors ? Probably assert trivial BIK ... but if you rely on an exemption in respect of the premium you've no 'proof' indemnities extend to the directors personally and in any event, the contract is usually with the employer .

So ... invoices probably then have to then be made out to insurer including irrecoverable VAT instead of VAT-registered company because supply is arranged and paid by the employer - but confers a benefit on an employee which doesn't qualify for an exemption. You then need to try to link whatever you did or didn't do in respect of the premium to take the indemnity receipt into account in the BIK value.

With a 3-year plus enquiry into an inbound's first tax return with complex personal aspects or OWR for example potentially running into tens of thousands of pounds, it's really not an argument I'd want to be having with HMRC in relation to the fees for the sake of the employer covering a modest personal premium for a direct contract with the director(s).

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By Tryingtodothingsright
05th Jun 2024 20:26

Thank you to all that have replied and I agree with all the options, they make sense and work. The predicament I am currently in is that when I pointed out to a partner that our firm's approach is incorrect, he said "It is not your problem" :( I am a qualified accountant, so it kinda is.

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Replying to Tryingtodothingsright:
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By Paul Crowley
05th Jun 2024 21:26

You were just following orders.
I doubt that this will ever come up as a real problem, even on an enquiry. PCRT says £200 of tax is trivial.
HMRC now accept PCRT as acceptable practice.

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By thevaliant
06th Jun 2024 16:56

Unfortunately, we do the same as your new firm. I'm quite sure that is our policy in order to slip personal costs through the company AND claim a CT deduction on it! We always show it as a seperate line on the bills however (!!??!) (Everyone's a winner - company claims VAT back, gets CT deduction and personal director client doesn't pay anything).

Bizarelly, our CT department disallow it if they see it, but obviously this doesn't solve the problem as it should be allowed but be a BIK.

We've occassionally been (rightly) stiffed when directors/shareholders change and the company refuses to pay for certain elements of our bill that related to previous shareholders/directors now gone.

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Replying to thevaliant:
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By kim.shaw-and-co.com
06th Jun 2024 17:36

thevaliant wrote:

Unfortunately, we do the same as your new firm. I'm quite sure that is our policy in order to slip personal costs through the company AND claim a CT deduction on it! We always show it as a seperate line on the bills however (!!??!) (Everyone's a winner - company claims VAT back, gets CT deduction and personal director client doesn't pay anything).

If you show it on a separate line then the employer company failing to declare a BIK is a clear compliance failure in relation to employees (P11Ds) and evasion of Class 1A unless relevant costs are included in a PSA instead (if eligible). So everyone may not end up being a winner down the line when HMRC finally get round to conducting some competent PAYE compliance checks again ....

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By Tax Dragon
07th Jun 2024 06:00

There's thread after thread in this forum where people say (as Paul has here) that the tax is trivial, no-one cares. But if it's so trivial why isn't the taxpayer paying it, if it's due? Client won't mind - no-one does, remember.

Also, while PCRT does mention the £200 figure, is that a gross/cumulative amount [ie all these trivial amounts added together] and in the context of correcting innocent errors? Or is it £200 per error? (Of course a conscious decision may not be an innocent error anyway. And, if you've 'used' your £200 on a conscious decision, you then may have no leeway left if there is also a [trivial] innocent error - if so you will have to correct both, under PCRT. This is a bit like my "that's your six" comment above: there's thread after thread saying not to worry, it's a trivial benefit - but do these threads [even assuming they are otherwise correct, which isn't always the case] consider the annual [cumulative] limit?)

But my weightier worry with all this is AML. Because these trivial* savings tend not to arise from good tax planning, but are more akin to evasion. Admittedly low level evasion, but still evasion. If your [firm's] mindset is to turn a blind eye to (or even assist with) these trivial* fiddles, are you looking out for the major ones? The potential sanction against your clients may be trivial*, but the potential sanction against you[r firm] is not.

* If not trivial, then what are you thinking?!

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Replying to Tax Dragon:
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By FactChecker
07th Jun 2024 13:02

FWIW my view on whether or not 'trivial' (or it's cousin 'material') are 'OK' is a matter of timing.
I take your point - which I would put more bluntly as 'if one is happy to be sloppy with the figures then there's no obvious line between that and falsification'.

BUT that is in terms of one's normal processes for bookkeeping and accounting (i.e. the original set of accounts from which tax calcs are prepared).
Where a notion of 'trivial' can be of use is in determining whether a discovered earlier error is worthy of the efforts/costs of re-working and re-submitting?

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By Homeworker
10th Jun 2024 10:25

If the only entries were the director's salary and company dividends, I didn't charge, as it only took 10 minutes to prepare the return. I charged if there was other personal income.
I used to put a nominal amount on a P11D where there was no charge but to be honest it was too much hassle for such a trivial amount, so I stopped that and just told the client there was no charge for his return.

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Replying to Homeworker:
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By Paul Crowley
10th Jun 2024 11:15

That is what I do
Simple returns free, Rent or anything that takes time is billed to the director, not the company.
Never yet had a challenge on a company.
We had a question on a partnership once, 30 years ago and I simply said that partners returns are free. It was accepted.
If free tax returns are all HMRC can find, then the enquiry was a waste of time. They should cut and run to find someone worth enquiring into.

My partners used to do a BIK on a small sum for all their relevant companies, but that stopped when two of them retired and I took over as managing partner.
The admin of the BIKS took twice as long as the tax returns. It is not just the P11ds and P11db but telling clients and organising payments.

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