I act for a sole director and shareholder who is also the managing director of their own limited company and they are being investigated because the company incurred an admission fee on behalf of the director and the inspector believes it should be included as a BIK without being an allowable expense against their income. For the sake of argument, the admission fee was incurred wholly, exclusively and necessarily for business.
Having told the inspector what my client's duties involve and why I believe the admission fee is an allowable expense, the inspector is now asking for an employment contract or service agreement or similar documentation.
Since they are the only director of the company and it is very small and they do not have a service contract, could somebody let me know how I should respond to this request? Should I be providing anything, and if so what?
I really hope someone can help me with this because it is dragging on!
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Replies (12)
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If there is nothing to provide I am not sure what you are asking.
Just tell the Inspector that as is only to be expected there is no formal service contract between this company and its sole director and shareholder.
If you want anyone to comment on the substantive issue you refer to you will obviously have to provide further details.
But a contract between a man and his own one-man company would be a complete waste of time and money to produce as it would serve no purpose of any kind.
You have perhaps made a rod for your own back by referring to the client's "duties".
Re: Employment contract request - admission fee BIK
Thanks for your feedback so far.
The reason I had to refer to my client's duties was because the inspector had asked for a list of their duties in our previous correspondence.
They had asked for:
What are your client's day to day duties?Is anyone else carrying out the same role?Why is it necessary for your client to incur the admission fee?
Therefore I have already described my client's duties in general terms and now they want some underlying documentation to prove this.
Any further help would be much appreciated!
are you sure
that you are dealing with a proper inspector or some junior grade box ticker
Without wishing to be pedantic, your client has no "duties" to anyone other than himself.
What he does have is a business that he carries out through his company. So the decision to incur the "admission fee" is relevant to the company's business in what way?
Re: Employment contract request - admission fee BIK
I appreciate your question of why the admission fee is relevant, and this has already been researched in depth. Without digressing, the nature of my client's business is that this cost must be incurred. The expense is incurred as part the primary activity of the business.
Accordingly, I am just struggling to respond to the inspector's request for an employment contract or service agreement or similar documentation.
Is there any relevant document you can think of that may satisfy this request?
Worrying reticence
I appreciate your question of why the admission fee is relevant, and this has already been researched in depth. Without digressing, the nature of my client's business is that this cost must be incurred. The expense is incurred as part the primary activity of the business.Whilst I don't expect you to change your stance on this, I'm curious as to why you won't come out and say what the expense is and why it is required for the business.
Because if it is as genuinely clear-cut a business expense as you say, the inspector should be given short shrift. If you can clearly demonstrate the expense is a business one, then who it was paid for and what their duties are is irrelevant, and they should be told so. So either the inspector is an amateur who does not know what they are doing, or the matter is not as black and white as you make out. The fact that you are even considering supplying more information to the inspector about the director's duties makes me lean towards the latter.
I have already suggested what you should say in response to HMRC's request for a copy of the contract of employment. If you don't need advice on the substantive issue then this thread is presumably now closed and good luck with the rest of your client's enquiry.
Refer him to the Memorandum and Articles of Association of the company and the Companies Act sections relating to the duty of directors. He'll soon shut up
It wasn't admission to a bike show...
...and the guy uses a bike to go to see clients and therefore was a "necessary expense" now was it?
Might it not be more cost effective for your client to pay the BIK than have you rack up time in the name of a principled stand?
Director's duties
One point that strikes me is be agreeing the director has duties outside outside of the statutory ones as an Office holder, you may be opening the door to the suggestion that NMW should apply, as their is an implied employment contract/director's service agreement.
I agree that if you could provide more detail regarding what this fee is for, it may help to explain HMRC's motivation.