PAYROLL INSIGHT
Peter Minchinton, employment taxes consultant at PSTAX, outlines historic and prospective taxation events Office holders
H M Revenue & Customs (HMRC) requires all organisations to deduct and account for pay as you earn (PAYE) and National Insurance contributions (NICs) from payments to their employees. However, it is often overlooked that these provisions also apply to those considered to be ‘office holders’. Prior to the introduction of PAYE in 1944, the Government collected tax from employers for the earnings of their employees. However, HMRC discovered that some ‘employees’ were not within the collection system because they were ‘office holders’ and taxed as though their income was a profit from a trade or profession. HMRC wanted office holders to be within the collection system and took as a test case a clerk, Mr Hall, working for the Great Western Railway (or God’s Wonderful Railway for those of us from the West Country). When the case went to the High Court it held that Mr Hall did not hold public office and the Judge said “Mr Hall is in no way such a public character, nor does he hold any office at all. He merely sits in one.” HMRC then amended the legislation in Finance Act 1922 to bring office holders within the collection system. So, how do we decide if someone is an office holder and thus minimise the risk of not deducting the correct tax and NICs? There is no statutory definition of the word ‘office’. It has been judicially defined
as a: “permanent, substantive position which has an existence independent from the person who filled it, which went on and was filled in succession by successive holders.” ...some ‘employees’ were not within the collection system because they were ‘office holders’... That definition was approved in another tax case with the proviso that a post need not be capable of permanent or prolonged existence but it must have an endurance at least beyond the tenure of one man. An ‘office’ may be created by a charter, statute or other document which is or forms part of the constitution of an organisation or which governs its operation. As part of any tax status review, HMRC may consider if persons engaged are office holders, even if they are deemed to be independent of the public body they ‘work’ for. Not all offices are easy to define. Here is an example. Mr Clinch was a chartered civil engineer. He was one of a panel of some sixty persons whom the Department of
Environment invited from time to time to act as Inspectors to hold public local inquiries in respect of matters for which the Secretary of State for the Environment was responsible. A department official would inform him of the location and date of an inquiry, and the daily fee payable, and would invite him to undertake it. Mr Clinch had complete discretion to accept or refuse the invitation. On acceptance he would have the papers forwarded to him with an authority, signed on behalf of the Secretary of State, appointing him to hold the particular inquiry. The conduct and procedure was his sole responsibility, subject to the rules governing tribunals and inquiries. If he became ill, or had some other urgent business to attend to, he could ask to be released. If the department consented, it would find some other Inspector to conclude the inquiry. The case reached the House of Lords, where it was held that Mr Clinch did not hold an office, because it was not a permanent position as it ceased at the end of the inquiry. There are other cases where specialists are brought in from a pool to carry out one-off reviews. Such are an independent social worker, an independent assessor requested under the deprivation of liberty rules, and legally qualified chairs (LQC), who meet the same criteria. For example, from January 2016, LQCs have taken over from chief police
| Professional in Payroll, Pensions and Reward | March 2017 | Issue 28 18
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