2017 07 27 921328 800x380 - Directors, beware minimum wage legislation

Directors, beware minimum wage legislation

We have recently considered some of the issues surrounding various tax efficient strategies for paying director shareholders. One aspect of this complex area that we have not yet examined is whether company directors need to be concerned with employment legislation in relation to the minimum wage.

At the most basic level, company directors who do not have a contract of employment are defined as office holders. Office holders are neither employees nor workers. Directors who are considered to be office holders do not qualify to receive the National Minimum or Living Wage.

However, company directors who also have an employment or worker’s contract can be both an office holder and an employee at the same time. If this is the case, the director would need to be paid the National Minimum Wage (NMW) or National Living Wage (NLW). The NLW is currently £7.50 for those aged 25 and over. The hourly rate of the NMW is £7.05 for adults 21-24 year olds.

Planning note:

Where there is a requirement to pay a director the NMW or NLW this would impact the strategy to pay a director’s salary at a minimum level that qualifies the director for state benefits but does not involve payment of any NICs. Careful consideration needs to be given in these cases, especially to directors of personal service companies to ensure the correct tax treatment is in place whilst at the same time considering the implications of employment law and the minimum wage legislation.

If you need advice in this area please call for more information.

2017 06 15 939610 800x380 - Employed or self-employed?

Employed or self-employed?

Working out whether you are an employee or self-employed can be a tricky business and HMRC’s view can sometimes be at odds with status defined under employment law.

Clearly, although not always, there are tax and NIC advantages for you and the business that contracts for your services if you are treated as self-employed as opposed to employed. However, you may have more rights – holiday pay for example – if you are employed rather than self-employed.

HMRC’s guidance states that you are probably self-employed and shouldn’t be paid through PAYE if most of the following are true:

  • you are in business for yourself, are responsible for the success or failure of your business and can make a loss or a profit
  • you can decide what work you do and when, where or how to do it
  • you can hire someone else to do the work
  • you are responsible for fixing any unsatisfactory work in your own time
  • the person contracting for your services has agreed a fixed price for work to be done – it doesn’t depend on how long the job takes to finish
  • you use your own money to buy business assets, cover running costs, and provide tools and equipment for your work
  • you can work for more than one client

It is also important to consider if the intermediaries legislation known as IR35 applies to a particular engagement and whether you should pay tax through PAYE. There are special rules that came into effect earlier this year for individuals providing services to the public sector via an intermediary. The new rules shift the responsibility for deciding whether the IR35 legislation applies from the intermediary to the public sector department receiving the service.

Planning notes.

HMRC offers an online employment status tax tool that can be used by workers, employment agencies and those seeking to hire a worker. HMRC will allow users to rely on the results of the test provided there are no contrived arrangements or searches designed to get a particular outcome from the service. The service is anonymous and results will not be stored online. However, the results can be printed and held for your own records.

This area of tax law is a classic grey area and if you are at all unsure of your tax position, either as a supplier or purchaser of services, we would strongly recommend speaking to us about your arrangements.