A current hot topic is the payment and taxation of Office Holders, which continues to be a particularly complex area of employment tax law.

Before we continue, it is important to clarify what an Office Holder is. Common positions which fall into this definition include:

• All statutory directors (including Non-Executive Directors) and ‘shadow’ directors
• Senior company roles such as Chairman, Chief Executive and Managing Director and any other Board member
• Trustees, committee members, etc

The default position is that Office Holders are treated as employees for the purposes of tax law; the business under which the Office Holder holds office being the ‘employer’. This means, therefore, that any fees or other payments made in respect of fulfilling that role is taxable as employment earnings subject to PAYE and NIC deductions through payroll.

Complexities on the tax position can arise, however, where the arrangements involve more than an Office Holder being paid in respect of that specific “Office”. Two such situations that can be problematic include:

• Where the Office Holder is paid via an intermediary, such as a Personal Service Company.
  Whilst the presence of the intermediary in the formal arrangements does not normally impact the default position of payments being chargeable as income from an ‘employment’, it may potentially impact on which entity has the legal obligation to apply payroll deductions as the ‘employer’. This has become less of an issue since 6 April 2021 following the change to IR35 rules for medium/large businesses.
   
• The Office Holder is providing additional consultancy services over and above the Office role.
  Where the consultancy services are demonstrably separate from the Office role, this may be acceptable to HMRC, subject to the normal employment status/IR35 tests to determine if the consultancy is employment or self-employment. The Office role then remains subject to PAYE and NIC by default.
  
  However, the closer the link is between the consultancy services and the Office role, the more likely that HMRC will challenge that it is one combined role subject to PAYE and NIC deductions under the Office rules. Such a challenge can arise even if there are separate contracts in place.

Get in touch

This is a current focus area not just for HMRC during routine Employer Compliance Reviews but also for Corporate Transaction teams during tax due diligence. It is therefore essential that businesses are managing their risks appropriately in this area to prevent future financial or reputational impact.

Please contact me at brian.rudkin@jcca.co.uk or your usual JC contact if you have any questions or concerns in this area.