Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Employing Directors

Practical Issues
niord
Lemon Pip
Posts: 77
Joined: November 4th, 2016, 3:15 pm
Has thanked: 801 times
Been thanked: 20 times

Employing Directors

#202593

Postby niord » February 20th, 2019, 12:30 pm

I live in a residential complex of 15 properties that we manage ourselves. This is a limited company, we have currently 4 unpaid directors with one of the directors going beyond his duties and being a general handyman doing small jobs i.e. repairing the paths, plumbing in the common parts etc.

It has been suggested that we pay him a small amount of money to compensate him for his time. I am not talking lots of money probably only £1500/£2000 per year and he will will invoice us monthly from his company for the time spent.

I am not bothered about paying him but I am concerned that this will fall foul of some Inland Revenue rule or define him as employed and at some future point will come back and bite us but the directors are of the opinion that the amount is so low it will not be counted.

Does anybody know if my concerns are valid or am I just worried over nothing
Moderator Message:
Moved from DAK to Taxes (leaving a link). - Chris

dionaeamuscipula
Lemon Quarter
Posts: 1095
Joined: November 4th, 2016, 1:25 pm
Has thanked: 101 times
Been thanked: 374 times

Re: Employing Directors

#202620

Postby dionaeamuscipula » February 20th, 2019, 1:29 pm

niord wrote:I live in a residential complex of 15 properties that we manage ourselves. This is a limited company, we have currently 4 unpaid directors with one of the directors going beyond his duties and being a general handyman doing small jobs i.e. repairing the paths, plumbing in the common parts etc.

It has been suggested that we pay him a small amount of money to compensate him for his time. I am not talking lots of money probably only £1500/£2000 per year and he will will invoice us monthly from his company for the time spent.

I am not bothered about paying him but I am concerned that this will fall foul of some Inland Revenue rule or define him as employed and at some future point will come back and bite us but the directors are of the opinion that the amount is so low it will not be counted.

Does anybody know if my concerns are valid or am I just worried over nothing


HMRC's view is that office holders are by definition employees. However you are not paying him as a director, you are paying him as a general handyman. You should do the HMRC tests https://www.gov.uk/guidance/check-emplo ... us-for-tax for him as a handyman, if this shows him to be an employee then you should apply PAYE. If not, then you should have no problem.

The likelihood of HMRC investigating the company is pretty tiny but not nil.

DM

richlist
Lemon Quarter
Posts: 1589
Joined: November 4th, 2016, 3:54 pm
Has thanked: 33 times
Been thanked: 477 times

Re: Employing Directors

#202658

Postby richlist » February 20th, 2019, 3:26 pm

I'm not sure that having a director who does paid work for the company is allowed. Whilst he does the work voluntarily without pay there is no conflict of interest. Once he starts getting paid for work......that he, in his position of director decides needs to be carried out, it leaves him open to criticism.

I'd say he can either be a director of the company who does the occasional unpaid maintenance OR he can be a paid handyman of that company......but he can't be both.

UncleEbenezer
The full Lemon
Posts: 10691
Joined: November 4th, 2016, 8:17 pm
Has thanked: 1459 times
Been thanked: 2965 times

Re: Employing Directors

#202718

Postby UncleEbenezer » February 20th, 2019, 7:46 pm

richlist wrote:I'm not sure that having a director who does paid work for the company is allowed.

Of course it's allowed. And happens in (I'm sure) most active UK companies. In my case, it happens in years when my company has made money - which is some but not all of the past 20+ years. The directors decide who to employ, and it's their decision if that's him.

I'm sure he could be employed - and at such modest remuneration he's below the level where tax hits, so the red tape is the only real worry. It would be above my pay grade to say whether there's any risk of HMRC taking any unwelcome notice if he gets paid not as employee but contractor at that level. If he runs his company through which he does similar work for other clients, that should surely be fine.

IR35 is a keyword for the OP to look up. Though that's generally applied to much higher-paid workers in a grey area between employment and contracting.

PinkDalek
Lemon Half
Posts: 6139
Joined: November 4th, 2016, 1:12 pm
Has thanked: 1589 times
Been thanked: 1801 times

Re: Employing Directors

#202722

Postby PinkDalek » February 20th, 2019, 7:56 pm

UncleEbenezer wrote:... and at such modest remuneration he's below the level where tax hits, ...


That's assuming the £1500/£2000 per year is the individual's only taxable income.

IR35 is a keyword for the OP to look up.


Covered by dionaeamuscipula in his link to https://www.gov.uk/guidance/check-emplo ... us-for-tax

UncleEbenezer
The full Lemon
Posts: 10691
Joined: November 4th, 2016, 8:17 pm
Has thanked: 1459 times
Been thanked: 2965 times

Re: Employing Directors

#202739

Postby UncleEbenezer » February 20th, 2019, 8:31 pm

PinkDalek wrote:
UncleEbenezer wrote:... and at such modest remuneration he's below the level where tax hits, ...


That's assuming the £1500/£2000 per year is the individual's only taxable income.

Not the OP's problem. The employment red tape includes dealing with tax codes. It's well below the threshold for the more troublesome NI.
IR35 is a keyword for the OP to look up.


Covered by dionaeamuscipula in his link to https://www.gov.uk/guidance/check-emplo ... us-for-tax

Fairy nuff.

Hariseldon58
Lemon Slice
Posts: 835
Joined: November 4th, 2016, 9:42 pm
Has thanked: 124 times
Been thanked: 513 times

Re: Employing Directors

#203036

Postby Hariseldon58 » February 21st, 2019, 8:48 pm

How about a rebate against the handyman’s service charges, in lieu of payment.

It avoids the paperwork....

dionaeamuscipula
Lemon Quarter
Posts: 1095
Joined: November 4th, 2016, 1:25 pm
Has thanked: 101 times
Been thanked: 374 times

Re: Employing Directors

#203597

Postby dionaeamuscipula » February 24th, 2019, 9:29 pm

Hariseldon58 wrote:How about a rebate against the handyman’s service charges, in lieu of payment.

It avoids the paperwork....

HMRC would consider that income just as if he was paid cash, if they ever found out.

DM

Lootman
The full Lemon
Posts: 18681
Joined: November 4th, 2016, 3:58 pm
Has thanked: 628 times
Been thanked: 6564 times

Re: Employing Directors

#203602

Postby Lootman » February 24th, 2019, 10:07 pm

dionaeamuscipula wrote:
Hariseldon58 wrote:How about a rebate against the handyman’s service charges, in lieu of payment.

It avoids the paperwork....

HMRC would consider that income just as if he was paid cash, if they ever found out.

There are definitely ways to structure such arrangements so that there is technically no employment, no contract and no payment, and therefore no taxable liability. Two examples that I have personal experience with:

1) We sent our children to a private school. That school had a scheme whereby if parents volunteered a minimum amount of time per term for "useful" skills, then the school fees were lowered or waived. My wife provided time running the medical office there, and organising various functions, events and fund raisers. Some years we didn't pay any fees at all as a result, and there was no tax issue. Schools are free to waive fees in various situations e.g. for academic high-achievers, for special needs children, for the children of teaching staff or major benefactors, and so on. About 25% of the parents there paid no or reduced fees and nobody ever suggested that that value was taxable.

2) Back when I was a landlord I had one large multi-unit building that was some distance from where I lived, and therefore difficult for me to manage. I offered one of the rental units at a low rent in return for an informal arrangement whereby the tenant acted as handyman and generally looked after the building. Again no tax liability was assessed - after all, landlords and tenants are free to agree any rent that they want.

I believe the critical factor is the lack of a formal contract or relationship.

Hariseldon58
Lemon Slice
Posts: 835
Joined: November 4th, 2016, 9:42 pm
Has thanked: 124 times
Been thanked: 513 times

Re: Employing Directors

#203605

Postby Hariseldon58 » February 24th, 2019, 10:32 pm

I am aware of a development of 14 where fees are informally waived for the handyman/janitor and also for the individual who does the management duties.

Better service by far than when they employed a managing agent and far cheaper.

It’s so far below the radar that HMRC has far better things to do...

UncleEbenezer
The full Lemon
Posts: 10691
Joined: November 4th, 2016, 8:17 pm
Has thanked: 1459 times
Been thanked: 2965 times

Re: Employing Directors

#203608

Postby UncleEbenezer » February 24th, 2019, 10:58 pm

Lootman wrote:There are definitely ways to structure such arrangements so that there is technically no employment, no contract and no payment, and therefore no taxable liability. Two examples that I have personal experience with:

Methinks the reason that works is HMRC turning a blind eye.

They do have a tendency to do that in some cases. Both of yours are firmly rich-man's-dodges, which means that HMRC expect practitioners to be well-lawyered and ready to pounce on any technicality if they do try to clamp down. Not to mention that senior HMRC people or their friends/families might themselves be doing the same. In other words, a difficult and high-cost target for them.

didds
Lemon Half
Posts: 5244
Joined: November 4th, 2016, 12:04 pm
Has thanked: 3244 times
Been thanked: 1018 times

Re: Employing Directors

#203640

Postby didds » February 25th, 2019, 9:47 am

Agree with UE. IANAL etc but Id be absolutely amazed if HMRC didn't view provision of services in lieu of a financial engagement - or fliiping that around a lack of charging payment in lieu of services rendered - as being anything but hidden earnings.

If I do 10 hours work that woud normally be charged as £100 but instead have £100 knocked off my bill its the same thing.

As UE said its more likely to have gone unnoticed or a blind eye turned rather than it being a simple dodge. Otherwise all our employers would do it provide us with a food hamper every week, some jerry cans of fuel etc etc etc to minimise our tax bill and their employers NICs.

didds

dionaeamuscipula
Lemon Quarter
Posts: 1095
Joined: November 4th, 2016, 1:25 pm
Has thanked: 101 times
Been thanked: 374 times

Re: Employing Directors

#203670

Postby dionaeamuscipula » February 25th, 2019, 11:45 am

Lootman wrote:
dionaeamuscipula wrote:HMRC would consider that income just as if he was paid cash, if they ever found out.

There are definitely ways to structure such arrangements so that there is technically no employment, no contract and no payment, and therefore no taxable liability. Two examples that I have personal experience with

...

I believe the critical factor is the lack of a formal contract or relationship.


That is not correct. If you could avoid taxation merely by failing to set up a formal relationship then taxation would virtually disappear overnight. The whole point of HMRC having the employment checking website is because they look at the substance of the relationship, not the contract.

DM

UncleEbenezer
The full Lemon
Posts: 10691
Joined: November 4th, 2016, 8:17 pm
Has thanked: 1459 times
Been thanked: 2965 times

Re: Employing Directors

#203673

Postby UncleEbenezer » February 25th, 2019, 12:14 pm

didds wrote:Otherwise all our employers would do it provide us with a food hamper every week, some jerry cans of fuel etc etc etc to minimise our tax bill and their employers NICs.

didds

Talking of which, do Luncheon Vouchers still exist? What's their tax status? Are they one of those things that gets half-taxed but still avoids NI?

And what about a subsidised staff canteen? Does that involve any kind of red tape with HMRC?

JonE
Lemon Slice
Posts: 398
Joined: November 11th, 2016, 11:35 am
Has thanked: 25 times
Been thanked: 97 times

Re: Employing Directors

#203694

Postby JonE » February 25th, 2019, 1:17 pm

didds wrote: Id be absolutely amazed if HMRC didn't view provision of services in lieu of a financial engagement - or fliiping that around a lack of charging payment in lieu of services rendered - as being anything but hidden earnings.


Bear in mind also that some barter involves goods and services which are subject to VAT and if one party is subject to VAT registration then things could get sticky. C&E used to take a strong position on barter and now that they're under the same roof as IR there may be enhanced opportunity to identify the activity.

Labour and Conservative parties have both been reported in the past couple of years to have been considering VAT on school fees. If that happens and if the school of Lootman's kids is still running its 'discounts for suppliers of labour' scheme then it may very swiftly change its policy (though it may already have done so).

Cheers!

didds
Lemon Half
Posts: 5244
Joined: November 4th, 2016, 12:04 pm
Has thanked: 3244 times
Been thanked: 1018 times

Re: Employing Directors

#203707

Postby didds » February 25th, 2019, 2:04 pm

UncleEbenezer wrote:Talking of which, do Luncheon Vouchers still exist? What's their tax status? Are they one of those things that gets half-taxed but still avoids NI?

https://en.wikipedia.org/wiki/Meal_vouc ... ed_Kingdom

seemingly no longer..

"The abolition of the concession, effective from 6 April 2013, was confirmed in December 2011, with the government maintaining its view that the relief was redundant given that it is worth only 15p per day"

And what about a subsidised staff canteen? Does that involve any kind of red tape with HMRC?


nothing leaping out at me in google but lots on providing meals for staff etc but I do;t think that means 75p for pasty and chips rather than £3 or whatever. I do recall something about a view of staff canteens being it kept staff on site during their break where they were more likely to be able to return to work on time a sa result... maybe it because and allowable expense in that regard? (expense to the employer)

And then of course what about staff befefits - 10% staff discount if you work for a supermarket (10K limit a year total benefit etc), reduced rates on <product provided by employer>, free travel if a bux/rail company employee etc etc etc


didds

PinkDalek
Lemon Half
Posts: 6139
Joined: November 4th, 2016, 1:12 pm
Has thanked: 1589 times
Been thanked: 1801 times

Re: Employing Directors

#203710

Postby PinkDalek » February 25th, 2019, 2:14 pm

UncleEbenezer wrote:And what about a subsidised staff canteen? Does that involve any kind of red tape with HMRC?


Overview here:

Expenses and benefits: meals for employees and directors
https://www.gov.uk/expenses-benefits-me ... -directors

The second page covers vouchers.

Lootman
The full Lemon
Posts: 18681
Joined: November 4th, 2016, 3:58 pm
Has thanked: 628 times
Been thanked: 6564 times

Re: Employing Directors

#203743

Postby Lootman » February 25th, 2019, 4:17 pm

dionaeamuscipula wrote:
Lootman wrote:
dionaeamuscipula wrote:HMRC would consider that income just as if he was paid cash, if they ever found out.

There are definitely ways to structure such arrangements so that there is technically no employment, no contract and no payment, and therefore no taxable liability. Two examples that I have personal experience with
...
I believe the critical factor is the lack of a formal contract or relationship.

That is not correct. If you could avoid taxation merely by failing to set up a formal relationship then taxation would virtually disappear overnight. The whole point of HMRC having the employment checking website is because they look at the substance of the relationship, not the contract.

The point I was trying to make, and Harieseldon as well I believe, is that a blanket statement that all such arrangements should fail is clearly an over-statement. If you were correct literally then any and every offer of any kind of help, discount, benefit or perk would lead to taxable imputed income.

If I offer a 10% discount for prompt payment, is that income? I give my kids pocket money for mowing the lawn? The treasurer of my allotment society doesn't pay the annual rental on his lot because he is an officer? I give you a lift to work? And so on. The whole world would stop revolving if every single arrangement like this was deemed to be a taxable transaction.

So as with any tax issue, HMRC may make a fuss in the more structured and evasive cases of such "trade" arrangements. But those rules are designed to catch egregious cases of real employment and not people doing favours for each other. The examples I gave were predicated on voluntary efforts and discretionary pricing. If HMRC had a major focus on that then I can't see how they'd ever get anything else done.


Return to “Taxes (Practical)”

Who is online

Users browsing this forum: No registered users and 3 guests