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Self-employment claims run out of fuel – directors duties not consultancy services

Written by Andy Vessey ATT, Larsen Howie’s Head of Tax


In the recent first-tier tax tribunal case of Petrol Services Ltd v HMRC [2018] UKFTT 773 (TC), its two directors sought to argue that they were providing consultancy services rather than carrying out duties of their office.

The company: Petrol Services Ltd

Petrol Services Ltd (PSL) run a petrol station business.

The business is comprised of two petrol stations. However, it does not engage any employees as the shops at the stations are sublet; the shop tenant collects the payments for petrol on behalf of its landlord.

In addition, each car wash on each site is let to another person providing hand car wash services.

The share capital is owned 25% each by the two directors, Mr. Odedra and Mr. Badiani, and their spouses.

Odedra and Badiani did not receive a salary from their company. They instead provided consultancy services to PSL – via a husband and wife partnership in the case of Odedra, and a company called Jadeprime Ltd in the case of Badiani.

Both entities were equally owned by their respective spouses.

Working practices

Odedra and Badiani usually work together, visiting the petrol stations two to three times a week and making decisions in unison.

The pair usually work between 20 – 40 hours a week, even though their consultancy contracts required their services for no more than 15 hours per week.

Whilst Odedra can take any amount of holiday he wishes, he cannot take more than two weeks at a time and he agrees his leave with Badiani.

Odedra habitually provided services to other customers in the past but now he is in his sixties he does not do so much additional work.

Contractual arrangements

Virtual identical contracts were put in place between PSL and the two directors trading vehicle of choice, in June 1999.

A monthly VAT exclusive fee of £3,000 was payable, with the fee being reviewed every 12 months and increased with reference to the upturn in PSL’s turnover and profit.

Each consultant was required to advise and assist PSL and also to promote the interests of PSL.

Odedra’s contract had an initial term of 5 years terminable on 2 years notice, whereas Badiani’s was 1 year terminable on 6 months’ notice.

HMRC’s view

HMRC had previously enquired into the Corporation Tax returns of PSL in both 2000 and 2007 but found nothing wrong. During the course of a separate PAYE enquiry, however, the Revenue argued that the arrangements were motivated by the saving of tax and that the payments for consultancy services were really directors fees and should be subject to PAYE tax and NIC by PSL.

During the course of their enquiries, HMRC obtained information from third parties that suggested that both Odedra and Badiani were acting in their capacity as directors of PSL rather than as independent consultants.

But what exactly was it about their contracts and working practices that made them, in the eyes of HMRC, more of an employee than a contractor?

Read the full article.