What do you mean by 'held out by the company to be an employee'? Does that mean you think he was an employee? He was not a director but had almost the same contract as the director except for needing to attend board meetings (so not an employee or a contractors contract).Yes, he did dispose of some shares, which is why this issue has arisen. But how do you argue with the HMRC who is claiming that because the contract called him a contractor not an employee and because they refused to put him on payee therefore he is not an employee?... what do we say to them? We have pointed out the results of the MHRC employment status indicator tool.
Is it legal to have someone work regularly for a company for a number of years and for them not to be an employee?
I think quite a few directors and managers may not be employees.
The difference between an employee and a contractor is that an employee can be told what to do and how to do it whilst a contractor can be told what to do, but but how to do it. That is the acid test and should be put before HMRC.
ER is only available to the following persons:
'an officer or employee of that company (or an officer or employee of one or more members of the trading group).' [HMRC Help Sheet 275].
This is clearly where HMRC are heading. As a contractor, so described in your husband's arrangements with the company he would not be so entitled.. He would be self employeed and have a far greater range of expenses which he coulld set off against his income that would an employee. The line to take against HMRC is that he was on exactly the same arrangements for payment as the directors save for attending board meetings. As I told you directors are employees per se and there is no way around that. His position is further reinforced by the fact that he never invoiced the company for work undertaken and that also by HMRC's own rules, the employment status indicator. I fear that due to the ineptitude, inexperience and incompetent management of the company's administrative arrangements that you are in for a battle with HMRC with endless correspondence. Naturally they want to recover CGT at 18% or 28% rather than 10%. Any assessment to CGT shoule be the subject of an immediate appeal and you may find it adviseable, if substantial gains are involved, to employ a local, trusted professional to act on your husband's behalf.
As a matter of interest what Class or Classes of National Insurance did your husband pay on his income from the company?
I am not sure. Will need to ask him when he gets home.
No, he has not paid NI on it because he had been asking the company to go on PAYE. He did declare the earnings though on his tax returns.
He also has not been paying any extra NI as a self-employed person.
In fact, he showed them the results of the HMRC employee status tool, which indicated that he should be an employee, and they did nothing. He made a proposal in writing to go onto PAYE, and at the meeting he was due to be discussing PAYE, they dismissed him on false grounds and incorrectly (i.e. they were meant to give him notice etc). He thinks that they dont want to have many people employed because that will make the company more attractive for further investment. He suspects that several of the managers are on contracts instead of being employed.
I may have written that incorrectly. The company that he claims should have been employing him with PAYE were the company that had the shares that he should be getting EN from. He was not working though a company. He was in on the ground floor.
How can it help if he was self-employed (which he wasn't and didnt pay tax in that way)? ... dont you have to be employee or an officer?
Well, he has to be in at the ground floor to claim ER. If he is deemed as self employed there is a problem. If, however, his is employed then the relief will be available. I did explain this principle in my original answer.
Hi.You do not have to be "in at the ground floor to claim ER". If that were the case, many people who buy existing businesses would not be able to claim ER.If I bought the shares in an existing limited company from the founder and satisfied the conditions set out in HS275, I could claim ER when I sold my shares. If that were not the case, the person who started a business from scratch would have trouble selling it because according to another view, the buyer would not have been "in at the ground floor". In addition, if I took on a business partner and gave them shares, they could also qualify for ER subject to meeting the conditions set out in HS275.