When a company fails to pay over the PAYE and NIC which should have been deducted from salaries paid to the employees and directors, HMRC can issue the directors and shadow directors of the company with personal demands for the tax due.

A shadow director is not registered as a director of the company with Companies House, but he or she will effectively control the company by giving instructions to the named directors, and to other staff who are accustomed to act on those instructions. Majority shareholders may be deemed to be shadow directors if they effectively run the company.

Liquidators can take action against shadow directors just as they can against the named directors for debts owing, including tax.

There have been a number of cases recently where HMRC has gone after the shadow director of the company to collect the unpaid PAYE. In those cases the individuals may have assumed they could avoid any responsibility for the company’s debts by not appointing themselves as a director of their company. However, HMRC questioned the staff involved to find out who issued the instructions to pay salary and not pay over the PAYE due, concluding that certain persons were shadow directors.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.

Q.The company provides the sales reps with pay-as-you-go mobile phones, who purchase top-ups when they need them, claiming the cost back on expenses. Does the cost of the top-ups need to be included on the forms P11D for those employees? Does it make a difference if the employee bought the pay-as-you-go phone?

A. Where the mobile phone is owned by the company and the contract is between the company and the telecoms provider, any top-ups purchased for that phone are tax free, as the provision of the phone is tax free. The cost of the vouchers does not have to be reported on the form P11D for each employee. Note this tax free treatment only applies to one phone per employee.

If the phone was bought by, and thus owned by the employee, the top-up vouchers are taxable and need to be reported on the form P11D. The employee could claim a deduction on their tax return for the cost of business calls made with the top-up payments, but this would involve analysing all the calls made into business and non-business calls.

If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.