Is a Company Secretary deemed an employee?

Is a Company Secretary deemed an employee if they receive a regular payment every year?

Didn't find your answer?

I have a client who lives in a leasehold property where the freehold is owned my a Limited company. Each leaseholder holds an equal share in the limited copmpany i.e. 1 share for every flat. She is concerned that given the company secretary receives a regular payment (£720 per year), they would be deemed an employee, and therefore this should 1) be reported via RTI, and 2) would there be any IR35 implications. Is there any case law around this that anybody knows of, as all answers i've received so far just state that they "might be consider any employee in addition to being an office holder". 

Replies (32)

Please login or register to join the discussion.

avatar
By jonharris999
28th Oct 2021 19:17

See as a starting-point https://www.gov.uk/employment-status/office-holder

This is really setting up a framework to allow people not to have the worries which are being expressed by your client here.

If you apply employment tests they will almost certainly fail - it seems most unlikely that there is MOO, that the company controls the person's work, supplies their tools, dictates their hours etc etc.

Thanks (1)
Replying to jonharris999:
avatar
By Paul Crowley
28th Oct 2021 20:06

I read that as making the payment taxable by the company

@OP
Is there a starter form saying this is my only income?
My guess is than it is £60 per month
Regular payment
See below, expectation is that appointing body deducts tax and NI

@OP
is the question about disclosure of employees on the accounts or whether tax should be deducted?

From link

"Working out employment status for an office holder
Someone is likely to be an office holder if most of these statements apply to them:

there is no contract or service agreement relating to their appointment
their duties are minimal, and are only those required under the relevant statute, constitution or trust deed

they don’t get a salary or any other form of regular payment for their services
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

they’re effectively working as an independent office, and are not under the close supervision or control of the appointing body"

Thanks (1)
Replying to Paul Crowley:
avatar
By stevestapes
28th Oct 2021 20:24

Many thanks for your response. To my knowledge, the £720 is declared in the accounts, but not via any PAYE scheme, as the number of employees listed in the accounts is NIL. Hence the worry things are not be declared in a proper manner. The fact the same payment is made every year, I would suggest that HMRC should be made aware that this person is being remunerated as an employee? Although it could be argued the duties are minimal, I would find it difficult to argue they are not an employee, given regular payments (of the same amount) are made on a regular basis, for the same duties.

Thanks (0)
Replying to jonharris999:
avatar
By stevestapes
28th Oct 2021 20:13

Many thanks for your response. I did view the page via the link you posted previously, however it didn't really give any clarity, hence why I wondered if there was any case law around this subject yet. May I ask why you think it's unlikely there is MOO. Surely in the role of as company secretary, there would be certain tasks that need to be performed, and that the company secretary would be obliged to perform these. The fact that these tasks are the same every year e.g. issuing notices, filing of the confirmation statement etc. and they are paid the same payment for this tasks every year. Also in respect of IR35, if its the secretaries role to perform these tasks, would the fact that in theory there could be no substitute, mean that this would further the case for being inside IR35. I appreciate the Arts of Association would possible need to be referred to on this point. Also I would suggest there is a element of control over when these tasks need to be performed, however this is probably a very loose interpretation of control.

Thanks (0)
Replying to stevestapes:
avatar
By Matrix
28th Oct 2021 20:29

Is the company secretary a company or an individual?

Thanks (0)
Replying to Matrix:
avatar
By stevestapes
28th Oct 2021 20:31

Individual

Thanks (0)
Replying to stevestapes:
avatar
By Paul Crowley
28th Oct 2021 20:38

HMRC do not consider MOO has any relevance.
But company expects secretary to do the work, and Secretary expects to be paid

Thanks (0)
avatar
By Paul Crowley
28th Oct 2021 20:15

If the officer is not declaring the income, then HMRC will always look to the company.
RTI and tax deductions are for some workers who may or may not be defined as employees. The critical issue: is the income being declared?

I assume there is no property management agent and the directors are all volunteers

Thanks (1)
Replying to Paul Crowley:
avatar
By stevestapes
28th Oct 2021 20:30

Thank you. Yes I suppose this is the main point HMRC would be interested in. If the correct amount of tax is paid on the payment, then given the small figures involved HMRC would "leave it alone". The key question is whether the officer would admit is such income wasn't being declared. Could the company still become liable if it turns out that the income wasn't being declared, as they should've made deductions in the first place.

Thanks (0)
avatar
By The Dullard
28th Oct 2021 20:23

Yes. ITEPA 2003, s 5 deems an office holder to be an employee. End of. IR35 doesn't come into it. The company should have considered its PAYE obligations; of which there may be none for a £720 annual payment.

Thanks (0)
avatar
By Tax Dragon
28th Oct 2021 20:26

First off, be very careful getting drawn into advising a non-client, or indeed advising a client about a non-client, as you describe in your OP. There's no obligation on anyone to pay you, but you can still be sued (indeed without limit and without insurance) if you get it wrong. (Of course, this forum provides an exception (albeit for reasons I don't quite understand) - you can tell anyone anything in here. You won't get paid but I've not yet been sued, despite getting plenty wrong.)

Jon's link concerned the legal position. For tax, it's much simpler. Individual office holders are subject to the same rules as employees.

Thanks (0)
Replying to Tax Dragon:
avatar
By Paul Crowley
28th Oct 2021 20:33

Wow
2 Tax Techies within 3 minutes of each other

Thanks (0)
Replying to Paul Crowley:
avatar
By Leywood
28th Oct 2021 21:10

And a payroll whizz

Thanks (1)
Replying to Tax Dragon:
avatar
By Tax Dragon
28th Oct 2021 20:36

Dulls beat me to it. The genius of using fewer words.

On my first para, it's the AML that really throws me. AML rules not my strong suit by any manner of means. Should we carry out AML on whomsoever we advise?

Thanks (0)
avatar
By Hugo Fair
28th Oct 2021 20:38

First ... who is your client (the Limited Company, or the Company Secretary, or one of the other Leaseholders)?

Next ... does the Limited Company currently operate a PAYE scheme?
And if not, is this because there are NO employees earning above the LEL?

Only if the Company is (or should be) operating a PAYE scheme will you need to consider whether the Company Secretary is an employee or is caught by IR35) ... as the indicated earnings are insufficient to require a PAYE scheme being set up just for this individual.

These considerations may mean you don't need to get into the 'employment' issues (which would be a good idea to avoid if possible as they would automatically bring other factors, with tiny values, into play - like paid holiday)!
And, as Paul says, the critical issue: is the income being declared (by anyone)?

EDIT: I can't believe how many responses I've just crossed with - but am happy to nod my head to the point about 'employee' status.

Thanks (1)
Replying to Hugo Fair:
avatar
By Paul Crowley
28th Oct 2021 20:48

We agree on most things, but my opinion is that a starter form is needed if there is any PAYE type payment
Payment below the NI limit does not mean that tax should not be deducted.
The starter form gives the employee a trigger

Thanks (0)
Replying to Paul Crowley:
avatar
By Leywood
28th Oct 2021 21:11

I bow to Hugo’s immense knowledge in this regard , but agree with you Paul on the starter form, as it covers more than one scenario on the relevant Q.

Thanks (1)
Replying to Paul Crowley:
avatar
By Hugo Fair
28th Oct 2021 22:45

"We agree on most things, but my opinion is that a starter form is needed if there is any PAYE type payment.
Payment below the NI limit does not mean that tax should not be deducted.
The starter form gives the employee a trigger."

The good news, Paul, is that we're not disagreeing at all!
My point was about the step before that ... 'Whether a PAYE scheme needs to exist despite there being an employee?'
I was trying to explain the rules governing that decision - which are in essence:

* If, say, the Co Sec was their only employee then (because annual earnings are below LEL) there is no need for a PAYE scheme + no need for RTI (so no need to operate PAYE on those earnings - irrespective of a voluntary but unused Starter Form).
* And even if Co Sec was not only employee (but all of them have earnings under LEL) then the same applies.

However if a PAYE scheme does exist (or doesn't but should exist), then EVERY payment to EVERY employee (however small) must be processed through PAYE and reported via RTI.
And to do this properly for a new employee, you should of course complete the Starter form - partly because them's the rules, but mostly in order to obtain an initial tax code/basis (that HMRC can then tell you to change).

https://www.gov.uk/hmrc-internal-manuals/compliance-operational-guidance...

So you see ... we do agree - just not if you and Leywood mis-read my earlier post (or maybe I should say not if I had made it clearer in the first place)!

Thanks (2)
Replying to Hugo Fair:
avatar
By Tax Dragon
28th Oct 2021 23:05

You and Paul might agree, but I'm struggling to reconcile your statements. Paul says tax might be due (under PAYE) irrespective of the level of payment (which makes sense eg if PA fully utilised in main employment). You say go back a step and forget PAYE (even if tax is due?) if pay is below LEL. How can tax be paid under PAYE if there's no PAYE scheme?

Thanks (0)
Replying to Tax Dragon:
avatar
By Hugo Fair
28th Oct 2021 23:25

Why do I start these convoluted streams ... which are only become so, because of a combination of HMRC terminology and my poor communication skills (at this time of night)? Anyway ...

1. PAYE is the name HMRC use to cover the collection of taxes due on employment earnings ... whether via the Employer or via SA (or of course both).
2. PAYE as operated by an Employer only ever provides a good approximation of the correct calcs (Wk 53 / unnotified benefits / other earnings / etc).
3. If an Employer *only* employs people at below LEL then they are not required to operate a PAYE scheme (indeed HMRC can get quite shirty if it is).
4. This means that a) those earnings are not reported via RTI, and b) suffer no deductions by the employer (even if they might be due for that taxpayer).
5. Nevertheless this doesn't in any way remove whatever liability that taxpayer may have (from these earnings alone and/or any others), which they must report & pay to HMRC themselves via SATR (after notifying HMRC so that a request to file can be issued).

So basically, "How can tax be paid under PAYE if there's no PAYE scheme?" ... when it is paid direct by the taxpayer, not via an Employer deduction through a PAYE scheme (that 'belongs' to the employer).

I'm not here to justify or defend the logic of any of this ... but that has been my understanding for the last few decades (including prior to RTI).
Unless of course you know different (I'm always willing to be corrected)?

Thanks (1)
Replying to Hugo Fair:
avatar
By Tax Dragon
29th Oct 2021 02:51

I've never heard tax due under SA described as PAYE before. I didn't know HMRC did that and frankly it sounds a ridiculous thing to do as 'PAYE' surely has a clear legislative meaning that does not encompass such tax. Using the definition you provide, what you say makes sense. Linguistically anyway. Logically... well, yes, maybe, to some extent - it avoids placing an administrative burden on (presumably mostly small) employers that meet the condition you outline. I didn't know HMRC cared so much that they would seek to reduce the administrative burden so. Shame they don't show the same concern with MTD and up the starting threshold to something halfway sensible.

Thanks (0)
Replying to Tax Dragon:
avatar
By Hugo Fair
29th Oct 2021 15:17

We seem to operate at opposite ends of the 24-hour clock ... but, I don't disagree with any of your points. Hence my reference to "HMRC terminology" which might have better said "HMRC's misuse of their own terminology (particularly within public guidance)".
FWIW I don't think that in their minds they fail to delineate between PAYE and SA - it's more that they recognise the PAYE rules (even when operated correctly) will often not end up attributing/collecting exactly the right amount of tax. So a SATR can provide a useful 'mop' (via the employment section) to correct things.

And on that point, my 'point 5' was wrong in that I truncated it too early. I said "which they must report & pay to HMRC themselves via SATR" ... but should have said "which they can report & pay to HMRC themselves via SATR, or may be able to 'make' the payment by requesting HMRC to adjust their current tax code/basis in-year".

Oh and I laud your attempt to retrospectively fit logic to HMRC's position ("it avoids placing an administrative burden on (presumably mostly small) employers that meet the condition you outline"). But I don't think it's likely that "HMRC cared so much that they would seek to reduce the administrative burden so". It's far more likely that, through some convoluted internal misunderstanding, they perceive it as somehow reducing *their* administrative burden!

Thanks (1)
avatar
By Michael Davies
29th Oct 2021 12:15

Haven’t checked this lately,but had a look at this years ago; if the Co Sec had some sort of “professional “ status,I am guessing a Lawyer or Accountant then the Company could then pay them gross.I stand to be corrected though.

Thanks (0)
RLI
By lionofludesch
30th Oct 2021 07:04

Why doesn't this Company Secretary just pay his taxes?

Thanks (0)
Replying to lionofludesch:
avatar
By Tax Dragon
30th Oct 2021 09:01

How do you know he's not?

No-one responded to my AML query. No-one ever does.

Thanks (0)
Replying to Tax Dragon:
avatar
By jonharris999
30th Oct 2021 09:40

Great use of "whomsoever", @Dragon. Hardly anyone gets that right.

I don't think that's what you meant, but I couldn't bear not to respond, and that was the only thing I could think of to say.

Thanks (0)
Replying to jonharris999:
avatar
By Tax Dragon
30th Oct 2021 10:02

Thanks, mon x

Thanks (0)
Replying to Tax Dragon:
avatar
By Hugo Fair
30th Oct 2021 12:38

I took your AML query to be rhetorical:
".. (Of course, this forum provides an exception (albeit for reasons I don't quite understand) - you can tell anyone anything in here.)"

I've always assumed, in no particular order, that:
* Not all responders/members are professionals in practice
* OPs are almost invariably anonymous (or at least using an avatar)
* There is no agreement between the two parties (let alone a client relationship)

So net result, irrespective of the occasionally correct (and sometimes brilliant) quality of the responses is no more than the opinion of MDTP ... which OP takes at face value entirely at their own risk (which presumably is Sift's position).

Or am I responding unnecessarily to a cri-de-coeur not looking for reciprocation?

Thanks (1)
Replying to Hugo Fair:
avatar
By Tax Dragon
31st Oct 2021 01:09

Does there have to be a client relationship to trigger AML obligations?

Thanks (0)
Replying to Tax Dragon:
avatar
By Tax Dragon
31st Oct 2021 01:50

Sorry my [quasi-rhetorical] point, Hugo, as I hoped was obvious, is that this is the situation the OP says he finds himself in - giving advice about the tax affairs of a company secretary and of the company itself, neither of which are his clients. Were he to advise these persons directly (but still not as clients), would he have AML obligations? (That's not rhetorical - I don't know. I'm assuming yes.) As the person to whom he appears to propose to give that advice is instead a minority shareholder who presumably cannot be said to represent either the secretary or the company, maybe it counts as tittle tattle and not advice, and maybe this provides some defence to the OP vis-à-vis accusations of AML failures. Again, I don't know. I doubt it provides much protection from being sued if the 'advice' is wrong, but yet again I don't know. (I've listed some known unknowns to add to my unknown unknown you unearthed earlier in this thread.)

My question as regards this forum... I have often said it (we) cannot provide advice. Others have rebuked me and have referred to their own contributions using the A-word. So we have professionals claiming to be giving advice. And not all unwashed OPs claim to be speaking for a friend or lover - when threads might similarly fall to be categorised as tittle tattle. For the OPs that speak for themselves and the professionals that give alleged advice, why is it different (re AML) just because the transaction happens online in an open forum?

Thanks (0)
Replying to Tax Dragon:
avatar
By Tax Dragon
31st Oct 2021 01:59

Tax Dragon wrote:

why is it different (re AML) just because the transaction happens online in an open forum?

Go back a step - is it different? Obviously my knickers have gotten all twisted about nothing if there're no AML obligations in giving advice to non-clients in a professional setting. (As it's something I've been trained not to do anyway, my brain has probably always turned itself off at that part of the AML course. It is pretty hard to stay awake during those courses. Full respect to people - David - who are able to master the rules.)

Thanks (0)
Replying to Tax Dragon:
avatar
By Hugo Fair
31st Oct 2021 13:02

As usual, I'm finding it hard to follow our 'conversation' as my post (to which you're responding) doesn't seem to be connected within the thread to the one from you at 28th Oct 2021 20:26 (the one to which I was responding)!

However, I fully agree with your main point there (regarding the situation in which OP might find himself giving advice about the tax affairs of a company secretary and of the company itself, neither of which are his clients).
It was only your secondary query (about this forum providing an exception) to which I was attempting to reply.

As you've no doubt noticed I have two styles when posting here ... highly specific (with legal refs) on a topic for which I am qualified; and (the more frequent) wondering aloud about aspects that occur to my logically-driven thoughts (which can look like mere random wanderings - but often seem to generate a spark of interest from those with greater knowledge in that sphere).
[Oh and occasional attempts at whimsical humour].

In that context, I take your question "Does there have to be a client relationship to trigger AML obligations?" as one of those sparks ... and the honest answer is that I don't know.

But I'd assumed (a dangerous pastime I know) that when you proffer an opinion to a stranger (at a party/conference or whatever) with whom you have no client relationship ... whilst I would always preface it with a caveat ("this is just my opinion not professional advice") ... I would not expect to be 'on the hook' for any consequential liabilities, because I have received no consideration (so there is no contract on which the recipient of my opinion could try to rely as evidence of professional advice).
[This raises the interesting, to me, question of whether advice is only professional if it is paid for!]

Of course this would be different if (as appears to be the case with OP) there IS a client relationship in place - and you are hoping to draw a line between different conversations (some as professional advice and some merely as personal opinion) ... much trickier and to be avoided if possible.

Anyway, without trying to 'count the angels', there's a lot of room for confusion between all the parties on a thread as to when a comment is advice vs a suggestion vs an opinion vs a related point of interest (without comment as to how it is relevant).
And you can see many of the regulars developing their own style for delineating between these ... but these subtle distinctions will unfortunately not be recognised by someone who is not a regular .
[Hence some reactions akin to toes being trodden on - although I think that those who mostly post a blanket 'get an accountant' aren't really helping].

So, my logic takes me to ... the existence or lack of a client relationship is likely to be of relevance - but the primary factor will be the context in which the 'adviser' represents her/his opinion (including any caveat given at the start).

Which brings us neatly back to the potential issue when proffering opinions (that can be perceived as advice) on a public platform such as this one. And as far as I can see we currently mainly rely for protection on the T&Cs published by Sift - which I can easily imagine someone claiming that they never saw let alone read.

So do we need to preface every response with a disclaimer?

EDIT: I've realised that I've provided an unintentional example of my wandering style - in that I've forgotten to return to the topic of AML!
However, I rather like the Law Society entry (via Google) that says:
"The anti-money laundering (AML) guidance produced by the legal sector AML supervisors ... The authors accept no liability for the content of the guidance"!

Thanks (1)