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A client company operating a garden centre has recently sold its business assets of land and buildings, resulting in a capital gain, and application will shortly be made to have it struck off at Companies House. The Inland Revenue has agreed that Extra-statutory Concession C16 may be applied to the dissolution. The two shareholders and directors are husband and wife, and the husband being over 50 is eligible for retirement relief. The wife, whilst being only 48, was medically unable to continue working in the business and this was instrumental in the sale.
A client company operating a garden centre has recently sold its business assets of land and buildings, resulting in a capital gain, and application will shortly be made to have it struck off at Companies House. The Inland Revenue has agreed that Extra-statutory Concession C16 may be applied to the dissolution. The two shareholders and directors are husband and wife, and the husband being over 50 is eligible for retirement relief. The wife, whilst being only 48, was medically unable to continue working in the business and this was instrumental in the sale. I have read the helpful article in Taxation ('How Ill is "Ill"?', 16/23 December 1999) and there is no problem of medical evidence as to the wife's illness.
Where an illness has worsened over several years, reducing the physical participation in the business dramatically, is the Revenue likely to argue that in these circumstances the wife could not have been a full-time working director and is therefore not eligible for retirement relief on those grounds in any case? I am aware of the provisions of section 163(7), Taxation of Chargeable Gains Act 1992, but I am not sure if they are relevant in this case.
Readers' views would be appreciated.
(Query T15,870) – William.
In its Tax Bulletin for April 1999, the Revenue published comments on the meaning of 'full-time working officer or employee' for the purposes of paragraph 1 of Schedule 6 to the Taxation of Chargeable Gains Act 1992. These followed the High Court proceedings in Palmer v Maloney but that decision was reversed by the Court of Appeal (reported [1999] STC 890), although the Revenue does not appear to have published the promised update of its views.
A situation of greater relevance arose in Venables and others v Hornby [2001] STC 1221 (reported in Taxation 'Update' column for 21 June 2001 at page 283). A director had retired seven years earlier than the normal retirement date and under the rules of the pension scheme became entitled to a lump sum because he had retired in normal health.
It was argued, firstly, that by remaining a director the individual had not retired and, secondly, that he had not been in normal health. The judge discounted health problems not abnormal in overweight middle-aged men and indicated that retirement did not occur so long as a person continued to have the responsibilities associated with directorship and was paid. That was consistent with full-time operation.
Also relevant is Inland Revenue Statement of Practice SP10/81 which equates with sudden disability an incapacity arising out of the culmination of a process of deterioration caused by chronic illness.
The two reported cases mentioned above should enlarge the notions of what constitutes full-time service. – Bear.
There are only two circumstances that definitely bar a director or employee from full-time status. One is where the contract of engagement specifies that it is part time and the other is where part of normal business hours are actually devoted elsewhere. If the second activity is conducted wholly in ostensibly leisure time (moonlighting), the status of the 'day job' is unaffected, as its hours are not invaded. If productive time were the only criterion, lunch and tea breaks, holidays, sick leave, and daytime union meetings would make part-timers of all the world and his wife.
When a company is owned by two persons, both are usually its officers. Typically one is the secretary and the other the director. Or the secretary may also be a director. So it is safe to assume that the wife is an officer of the company. This is a continuing state. However little time may be spent performing tasks, the responsibility is continuous, even during sick leave.
It is considered that a challenge by the Inland Revenue under section 163(7), Taxation of Chargeable Gains Act 1992 would only be reasonable if the working hours were to average less than ten per week, the criterion specified in the section, but even that is arguable. It is suggested that the point to emphasise is that extensive sick leave has been unavoidable (hence the retirement before age 50), and that the lady devotes to the company 100 per cent of the hours she is able to work at all.
The views of the Revenue are set out in the Capital Gains Tax Manual at CG63621, but may need updating following the case of Venables and others v Hornby. – Man of Kent.
