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Can A Director Also Be A Consultant To Their Own Company?

The directors said yes, HMRC said no ...

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National Insurance is a significant cost for any employing company. Therefore wouldn't it be great if you could save National Insurance by segregating your duties as a director from your other duties?

HMRC took Petrol Services Limited to tribunal over the director's consultancy agreements!

HMRC took Petrol Services Limited to tribunal over the director's consultancy agreements!

photo by ethan cull on unsplash

This means you become a self-employed consultant to your own company. This was recently tested in the case of Petrol Services Limited v HMRC at a First-Tier Tribunal (FTT) where it was found that payments to two directors were effectively remuneration liable to income tax and NICs under PAYE.

Here are the circumstances in which the case was heard:

  • Petrol Services Limited carried on a petrol supply business

  • It had two directors; both didn't receive any remuneration, but had consultancy agreements

  • These agreements meant they were paid a fixed amount for a certain number of hours

  • Their petrol stations were sublet and tenants paid rent and collected payments on sales

  • The directors purchased petrol, set prices and collected takings and rent. They inspected premises, offered insurances and repairs

  • They worked between 20 and 40 hours of work each week

  • The directors and their wives each held 25% of the shares

HMRC made the case that the directors had contracts of service with Petrol Services Limited and were, in fact, employees of the company. Therefore, they should be paying income tax and National Insurance contributions on a PAYE basis.

The directors said their contracts of service were outside the scope of their directorships so could not be covered by PAYE because they were performing services outside the scope of being a director of the company.

The FTT ruled in favour of HMRC, however, they did dismiss the information HMRC obtained from PSL's suppliers as insubstantial, but held that payments were remuneration and should have been paid by PAYE. They also confirmed that directors would be expected to perform services outside the scope of being a director, so dismissed that part of their argument.

"Would you like to know more?"

If you're a company director and unsure if your remuneration agreements are covered by PAYE or a consultancy agreement and want to review your tax position, do give me a call on 01908 774323 or click here to ping me an email and let's see how I can help you.

Until next time ...


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More about Helen Beaumont ...

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.