In May 2012 HMRC published a consultation document entitled “The taxation of controlling persons”. The purpose of this paper is to consider whether the insertion of a provision to ensure that controlling persons of a company have to pay income tax (PAYE) and National Insurance at source by the engaging company would be “a necessary and appropriate way of achieving this aim and to test whether the provision is sufficiently targeted and without unexpected detrimental effects”.
The Intermediary Legislation 35 would usually apply if the individual would normally be an employee, however there are many different situations which fall outside of this, including “shadow” and non-executive directors.
So how does this paper define a company’s controlling person? It defines them as:
“someone who is able to shape the direction of the organisation having authority or responsibility for directing or controlling the major activities of the engaging organisation during the year. This would be someone who has managerial control over a significant proportion of the organisation’s employees and/or control over a significant proportion of the budget of the organisation.”
However, and very importantly, this proposed anti-avoidance scheme shall exclude “micro businesses”. These being businesses with a turnover and/or balance sheet of not more than 2 million Euros and less than 10 employees.
This could cause companies to be liable for the deduction of tax at source rather than relying upon the individual settling their own tax bill. The irony is of course that the “controlling” [non] director may hold the purse strings and therefore ensure that this proposed anti-avoidance legislation is not adhered to by the company.