I have a client where the business is run by a husband and wife neither of them are directors of the company but they are the ones wholly responsible for the business and all decisions etc. A third person is director, in name only, I don't know what the history is behind this.
Reviewing the books I can see that there are chunks of money taken out of the company throughout the year. The accountants have shown this as consultancy costs in the accounts. My question is if there was a PAYE inspection my thoughts are that these costs would be argued as being salary and hence would be subject to NI and PAYE etc. do you agree? Neither the husband or wife work for any one else.
My other thoughts are that this couple are effectively the directors of the company although not named as such. If the revenue were to look at the business would it ever be possible for them to reclassify these costs as DLA and as the sum is over £10k there would be interest and CT charged as no repayment would have been made on it.
I would welcome your thoughts as I want to get it all clear in my head and perhaps try and understand why it has been treated the way it has in the past.
The director is in name only. The business is run by the couple and they have the money that is taken out of the company and it is shown as consultancy. If you look at the facts of the case I think that these are in effect salary costs and should be shown as that.
Forgot to mention in earlier post that car lease costs for couple are put through the books too. I think they should be shown as employees.
Are they perhaps trying to run a business where they have previously been disqualified as directors? If so then they are perpetrating a criminal offence per S11 of the Company Directors Disqualification Act (1986).
If they either have been disqualified then any payment to them (directly or indirectly) is an MLR offence.
There are issues over the car (see DJ Cooper vs HMRC (2012)) as it seems that the consultancy (assume self employment / partnership) is set up purely as an engine to manipulate the tax. Whilst quite common such is only because HMRC are still working their way through such evasion cases.
Of course, because it looks bad does not mean that it is but certainly with the facts that you have given I have a bad feeling about this client... as obviously you do as well which is why you are posting your concerns,
If a client feels wrong then always consider the risk to your own business reputation if you represent them.
-- Edited by Shamus on Thursday 19th of February 2015 02:20:51 PM
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Fiona - I'd have a word with your professional body, they're bound to have an MLR and or Law bod you can chat to.
Also, if you havent already - get your MLR paperwork and searches done pronto!
The director is in name only. The business is run by the couple and they have the money that is taken out of the company and it is shown as consultancy. If you look at the facts of the case I think that these are in effect salary costs and should be shown as that.
Forgot to mention in earlier post that car lease costs for couple are put through the books too. I think they should be shown as employees.
It is perfectly ok for the husband and wife to be sole traders charging consultancy fees providing they declare such on self assessment. An issue would be if they were working only for this company, then you would need to look at whether this was genuine self employment
The car muddys the waters tremendously, as they can't have their cake and eat it. If they are consultants then the car goes through their own sole trader/partnership accounts, not the company.
On the surface, I would agree with you that this couple are employees rather than consultants.
-- Edited by 111 Bookkeeping and Payroll on Wednesday 18th of February 2015 12:15:07 PM
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
