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My client company has developed a new product and is seeking to promote this by various means. One such is recommendations from its satisfied customers. The company's publicity staff contact customers and visit them by appointment. They may make a written interview for publicity material or audio or video-taped interviews for subsequent transmission as part of its advertising campaign. The customers are paid £100 for their time.
My client company has developed a new product and is seeking to promote this by various means. One such is recommendations from its satisfied customers. The company's publicity staff contact customers and visit them by appointment. They may make a written interview for publicity material or audio or video-taped interviews for subsequent transmission as part of its advertising campaign. The customers are paid £100 for their time.
I am now preparing my client's accounts and am wondering about the tax implications. Presumably these are allowable in full, but should the company have made any tax deduction from the payments and could there be any liability 'further down the line', in the event that the Revenue asks about these? As the company wishes to promote its products on a national basis, there is the potential for these £100 payments to add up to a rather large amount.
Readers' advice and comments are welcomed.
(Query T16,568) — Interviewer.
For a start, it is clear that the customers have not become employees subject to the pay-as-you-earn duties regulated by ITEPA 2003, with their attendant National Insurance obligations. The duty or opportunity to deduct income tax from a payment can arise in the context of annual payments, dealt with in
TA 1988, Part IX. The requirement to deduct and account for income tax under TA 1988, s 349 is now greatly reduced and does not reasonably apply to the sums here, which lack a recurrent character.
The question might be asked, how does the Revenue check up on payments of an unusual nature not obviously accountable by the recipient as obtained in the course of a business? The scope for enforcement is given by TMA 1970, s 16 ('Fees, commissions, etc.'), which says that every person carrying on a business shall, if required to do so by a notice from the Revenue, make a return of specified payments. Indeed, the requirement can extend to the activity carried on by any body of persons, even if not trading. The return requires (s 16(4)) 'the name of the person to whom each payment was made, the amount of the payment and such other particulars (including particulars as to the services or rights in respect of which the payment was made, the period over which any services were rendered and any business name and any business or home address of the person to whom payment was made) as may be specified in the notice'. Interviewer should therefore ensure that the company has this information in readiness in the event that the Revenue asks for it.
The expression 'payments' is extended to include the giving of any valuable consideration and also covers payments in respect of expenses incurred in connection with the rendering of services, as well as commission of any kind. One specified category that might be specified in a Revenue notice under s 16 is that of payments for services rendered by persons not employed in the payer's business (s 16(1)(a)). It may be supposed that, in general, an Inspector becomes aware of systematic payments in the course of an audit or otherwise, and is concerned to check that, in the hands of the recipients, the payments have been appropriately dealt with.
Another category specified (s 16(1)(b)) concerns 'the formation, acquisition, development or disposal of the trade or business, or any part of it'. If the new product represents the commencement of a distinct trade, rather than being an element of the expansion of the existing trade, this category would apply. Once again, it does not extend to employees of the business. Of course, if the new product has preceded the start of the trade in which it is to be exploited, the sums of £100 and other expenses of the client company would need to be segregated and dealt with in due course under TA 1988, s 401 ('relief for pre-trading expenditure').
While on the subject of such payments, and as it is a new product that is in question, the third category of s 16, which is not confined to non-employees of the business (i.e. s 16(1)(c)), could apply. The subject here is that of periodic or lump sum payments made in respect of any copyright, public lending right, right in a registered design or design right. For example, it might be that an employee has privately pioneered and registered a design, which he has made available to the business of his employer.
Finally, Interviewer should note that returns are not required for periods ending more than three years before the year of assessment in which the Inland Revenue notice is served.
