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Subbie director

15 August 2007
Issue: 4121 / Categories: Forum & Feedback , IR35 , Business , Income Tax
A relatively new building contractor client — who trades through a limited company — has recently brought in his first year's records. Despite our advice to the contrary, instead of treating his own drawings as director's remuneration — and subject to PAYE — he has treated them in the same way as payments to his subcontractors; i.e., taxed under the building industry subcontractors' scheme.

The client was previously self employed and it seems that he has also continued to pay Class 2 National Insurance contributions.
It seems ironic that a client who pays other subcontractors to dig holes has now dug one for himself! Could readers give me any practical advice as to the best way of digging him back out?
Query T17 059 — Sam Spade.

Reply by Hodgy:

In these types of situation I sometimes find it easiest to say what these payments from the company to the client are not rather than what they are. This is a payment to a shareholder and director of the company and there is no contract in place between the company and the individual so HMRC will not accept that this is a contract for services and that the money should be taxed as if it were income from...

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