Entrepreneurs Relief - Employee or Official

[Milbo]

We have a situation whereby a P46 has been signed by the employee (12.5% shareholder) who has also been a member of the Board (but not a Director or Co Sec) since incorporation in 2007 and which is documented.

The employee is to retire and the other shareholders have been approached to buy the shares.

If the employee receives a salary then E.R. will be due. In this case, a salary is not currently paid to any of the shareholders.

If a salary has to be paid to qualify for E.R. does it have to be at least NMW? Will the payment of a bonus suffice?

Many thanks,

Mark

[section 44]

a member of the Board (but not a Director or Co Sec)

What do you mean by the "board" - board of what?

Typically the “board” is used to refer to the “board of directors” (hence you cannot be a member of the board if you are not a director).

[King_Maker]

a member of the Board (but not a Director or Co Sec)

What do you mean by the "board" - board of what?

Typically the “board” is used to refer to the “board of directors” (hence you cannot be a member of the board if you are not a director).

I was going to ask the same thing. Unless a "shadow" director?

[Milbo]

There are 7 shareholders, two of which are directors.

Regular meetings are held which they term 'Board Meetings' and are attended by all shareholders to discuss business matters.

The retiring shareholder is not a Director and based on what you say, is not a Board member either.

Please therefore ignore that part of the post.

[King_Maker]

I assume the lack of employee or director status for the previous 12 months is the stumbling block to a current share sale?

An interspousal transfer and sale in 2 tranches over 2 tax years (possible CGT shelter ~ £40,000) is not a viable alternative?

[LozaACCS]

You refer to the individual as an employee, if this is the case as long as he/she has been an EE for the 12 months leading up to the disposal then it does not matter whether he/she was a director or otherwise.
There is no requirement to work any specified hours, the NMW is relevant only in the context of whether the employment is lawful.
I think the issue here is one of evidence, the test is whether there is an employment or an office that is capable of being taxed within the provisions of ITEPA 2003, a bonus may well be covered but you would have to be clear on what the bonus was for and the period of time it related to.

[King_Maker]

I had assumed the P46 (usually for new employees without a P45) was only recently completed - but on re-reading the first post, this may not necessarily be so.

It would be useful to clarify the date employment started.

[Milbo]

Thanks all.

The P46 was signed over 12 months ago but has not been sent to HMRC otherwise we would be able to prove the employee status even though no remuneration has been paid.

Are HMRC likely to accept a signed P46 as employee status when claiming ER?

[King_Maker]

So no (written) Contract of Employment nor Statement of Employment?

However, does the individual and the company consider him an employee from 12 months ago? If so, on what basis?

What work has he done for the company? Why has he not been paid for it?

[Milbo]

The business is a Health Centre Pharmacy and the shareholders are the Doctors (who practice nearby) and a Pharmacist who has another independent Pharmacy again nearby.

The individual selling the shares is one of the Doctors.

No remuneration has been taken whilst the pharmacy becomes established.

Work done includes overseeing the running of the practice, liaising with the Doctors and the Pharmacist in relation to staff matters, purchases, stocks, cashflow etc.