Legality of Martin Lewis's advice

leitmotif

Jeremy535897 said:

Paragraph 2.5 of the directive is trying to be equivalent to a GAAR in tax. The whole point of a GAAR is to cover avoidance you haven't covered specifically.

Which necessarily entails ambiguity. Strategic ambiguity is widespread in law.

jfinnie

leitmotif said:

craig88b

‘By your argument, you would also be able to set up a new LtdCo and re-employ yourself in that business. But you definitely, definitely can't do that as the direction is very clear’

Definitely?

jfinnie

‘I agree with you that it's probably pushing the limits’

Probably?

‘I don't think really there is any doubt here or even much of a question of pushing the limits’

Think?

 

See my comment on page 2 of this thread about people being content to merely assert that it’s against the rules. I’m looking for something concrete that makes it clear that continuing to provide the same services as a self-employed individual whilst furloughed would be an abuse of the scheme, i.e. something that will explicitly rule out my proposed interpretation of the scheme as ‘helicopter money’. Nothing raised so far in this thread has been sufficient to rule out that interpretation. I would accept that being seconded to a different division within the same company or to a different entity within the same group of companies would be 'definitely, definitely' against the rules, as these are clearly 'linked or associated organisations', but nobody here has managed to demonstrate (rather than assert) that a director of a limited company performing the same work in the capacity of self-employed individual would constitute a linked or associated organisation. One's subjective interpretation of what constitutes a linked or associated organisation is no substitute for clear and concrete definition in the guidance itself.

You definitely can't set up a 2nd Ltd and put the work through that.  Have you followed through the chain of information from the direction?  I am neither a lawyer nor accountant but it doesn't seem hard to follow - the language seems fairly clear.  If you are paying an accountant ask how what you are proposing sits with the below.

From CJRS Direction: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/879484/200414_CJRS_DIRECTION_-_33_FINAL_Signed.pdf 

6.2 An employee has not ceased all work for an employer if the employee works for a person connected with the employer (see paragraph 13.4) or otherwise works indirectly for the employer. 

13.4 says:

13.4 For the purposes of determining whether a person, company or charity is connected with an employer for the purposes of CJRS- 

(a) whether a person is connected with an employer must be determined in accordance with section 993 of the Income Tax Act 2007; 

(b) without prejudice to paragraphs 13.4(a) and 13.4(c), whether a company is connected with an employer (where the employer is a company) must be determined in accordance with section 1122 of CTA; 

Section 993 of Income tax act 2007 says: http://www.legislation.gov.uk/ukpga/2007/3/section/993

(6)A company is connected with another person (“A”) if—

(a)A has control of the company, or

(b)A together with persons connected with A have control of the company.

Section 1122 of CTA says: http://www.legislation.gov.uk/cy/ukpga/2010/4/section/1122

(2)A company is connected with another company if—

(a)the same person has control of both companies,

(b)a person (“A”) has control of one company and persons connected with A have control of the other company,

(c)A has control of one company and A together with persons connected with A have control of the other company, or

(d)a group of two or more persons has control of both companies and the groups either consist of the same persons or could be so regarded if (in one or more cases) a member of either group were replaced by a person with whom the member is connected.

The new limited company with same director or a related director (eg a spouse, defined earlier on in the above acts as a connected person) definitely fails very clearly on the above.  With respect to self employed instead of limited, the only perhaps ambiguity is whether you think a sole trader business passes the bar of not being connected to a company of whom you were a director of, and that seems like it means the definition of "working for yourself" is re-interpreted as not meaning working for yourself, but actually working for no-one...!  I personally very much doubt that will bear any close scrutiny.   

At the end of the day this is down to the combination I guess of what you think is right in the intention of what is set out, and perhaps if you want the money anyway (!) your attitude to the risk / reward of claiming it if you think your case is marginal or illegitimate and you might be either pushing it or over the edge.  

As I say I'm no lawyer / accountant but I can't see any real wiggle room or way round in the above unless you go to some really contrived lengths (like maybe getting a mate's business to bill to do the work and you are then paid a salary by your mate's business for doing the work for their business).  That sounds like it might pass if the questions about working hours and contracts of employment are not issues.  But at the point you're going to those lengths to circumvent measures in the direction, it is very clear I think that you're morally operating miles outside the intention of the scheme and any attempt to justify that this was parachute money is clearly BS - you're just trying to get whatever you can by whatever means...

Good luck with whatever way you choose to go.  If you or your accountant have alternative readings of the above I'd be interested to hear them.  I'd really be interested to know what Martin Lewis thinks on the subject as it seems his advice might be leaving folk exposed.

leitmotif

jfinnie said:

leitmotif said:

craig88b

‘By your argument, you would also be able to set up a new LtdCo and re-employ yourself in that business. But you definitely, definitely can't do that as the direction is very clear’

Definitely?

jfinnie

‘I agree with you that it's probably pushing the limits’

Probably?

‘I don't think really there is any doubt here or even much of a question of pushing the limits’

Think?

 

See my comment on page 2 of this thread about people being content to merely assert that it’s against the rules. I’m looking for something concrete that makes it clear that continuing to provide the same services as a self-employed individual whilst furloughed would be an abuse of the scheme, i.e. something that will explicitly rule out my proposed interpretation of the scheme as ‘helicopter money’. Nothing raised so far in this thread has been sufficient to rule out that interpretation. I would accept that being seconded to a different division within the same company or to a different entity within the same group of companies would be 'definitely, definitely' against the rules, as these are clearly 'linked or associated organisations', but nobody here has managed to demonstrate (rather than assert) that a director of a limited company performing the same work in the capacity of self-employed individual would constitute a linked or associated organisation. One's subjective interpretation of what constitutes a linked or associated organisation is no substitute for clear and concrete definition in the guidance itself.

You definitely can't set up a 2nd Ltd and put the work through that.  Have you followed through the chain of information from the direction?  I am neither a lawyer nor accountant but it doesn't seem hard to follow - the language seems fairly clear.  If you are paying an accountant ask how what you are proposing sits with the below.

From CJRS Direction: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/879484/200414_CJRS_DIRECTION_-_33_FINAL_Signed.pdf 

6.2 An employee has not ceased all work for an employer if the employee works for a person connected with the employer (see paragraph 13.4) or otherwise works indirectly for the employer. 

13.4 says:

13.4 For the purposes of determining whether a person, company or charity is connected with an employer for the purposes of CJRS- 

(a) whether a person is connected with an employer must be determined in accordance with section 993 of the Income Tax Act 2007; 

(b) without prejudice to paragraphs 13.4(a) and 13.4(c), whether a company is connected with an employer (where the employer is a company) must be determined in accordance with section 1122 of CTA; 

Section 993 of Income tax act 2007 says: http://www.legislation.gov.uk/ukpga/2007/3/section/993

(6)A company is connected with another person (“A”) if—

(a)A has control of the company, or

(b)A together with persons connected with A have control of the company.

Section 1122 of CTA says: http://www.legislation.gov.uk/cy/ukpga/2010/4/section/1122

(2)A company is connected with another company if—

(a)the same person has control of both companies,

(b)a person (“A”) has control of one company and persons connected with A have control of the other company,

(c)A has control of one company and A together with persons connected with A have control of the other company, or

(d)a group of two or more persons has control of both companies and the groups either consist of the same persons or could be so regarded if (in one or more cases) a member of either group were replaced by a person with whom the member is connected.

The new limited company with same director or a related director (eg a spouse, defined earlier on in the above acts as a connected person) definitely fails very clearly on the above.  With respect to self employed instead of limited, the only perhaps ambiguity is whether you think a sole trader business passes the bar of not being connected to a company of whom you were a director of, and that seems like it means the definition of "working for yourself" is re-interpreted as not meaning working for yourself, but actually working for no-one...!  I personally very much doubt that will bear any close scrutiny.   

At the end of the day this is down to the combination I guess of what you think is right in the intention of what is set out, and perhaps if you want the money anyway (!) your attitude to the risk / reward of claiming it if you think your case is marginal or illegitimate and you might be either pushing it or over the edge.  

As I say I'm no lawyer / accountant but I can't see any real wiggle room or way round in the above unless you go to some really contrived lengths (like maybe getting a mate's business to bill to do the work and you are then paid a salary by your mate's business for doing the work for their business).  That sounds like it might pass if the questions about working hours and contracts of employment are not issues.  But at the point you're going to those lengths to circumvent measures in the direction, it is very clear I think that you're morally operating miles outside the intention of the scheme and any attempt to justify that this was parachute money is clearly BS - you're just trying to get whatever you can by whatever means...

Good luck with whatever way you choose to go.  If you or your accountant have alternative readings of the above I'd be interested to hear them.  I'd really be interested to know what Martin Lewis thinks on the subject as it seems his advice might be leaving folk exposed.

In light of the above, I'd agree with your interpretation, although I perceive there to be a little more room for manoeuvre interpretation-wise, this mainly hinging on the formulation of clause 6.2, which mentions connected person but not specifically connected company. Some might argue that 'otherwise works indirectly for the employer' could be taken to encompass working for a connected company, but it could be countered that this formulation implies that the limited company would ultimately benefit financially from the furloughed party's efforts. I think what you've quoted goes a long way towards convincing me that it would not be sensible to furlough myself and continue to perform the same services for the same clients as a self-employed individual. And I fully agree that Martin Lewis should amend his advice, because it now seems profoundly ill-advised. 

koru

In summary, there appears to be significant doubt whether Martin's suggestion on this is consistent with the rules (ie, the Treasury Direction). But there is no categoric certainty that he is wrong. (This thread formed similar conclusions: https://forums.moneysavingexpert.com/discussion/6130882/problem-with-martins-idea-about-furloughed-company-director-working-freelance/p1) 

One reason why Martin could be right is that HMRC might intend to take a more generous interpretation than they normally do with tax legislation. In the absence of any reliable evidence that this is their intention, however, I've decided that I won't be claiming. (Though this is also because I need to do admin activities that are not statutory duties, so I don't think I could furlough myself anyway.)

As for whether the CJRS is intended to be helicopter money, I would observe that if this were the case they would not have included the rule about not working for persons associated with the employer. This does not prove for certain that it isn't, but in my view the current weight of evidence is against a 'helicopter money' interpretation for directors.

jfinnie

leitmotif said:

In light of the above, I'd agree with your interpretation, although I perceive there to be a little more room for manoeuvre interpretation-wise, this mainly hinging on the formulation of clause 6.2, which mentions connected person but not specifically connected company. Some might argue that 'otherwise works indirectly for the employer' could be taken to encompass working for a connected company, but it could be countered that this formulation implies that the limited company would ultimately benefit financially from the furloughed party's efforts. I think what you've quoted goes a long way towards convincing me that it would not be sensible to furlough myself and continue to perform the same services for the same clients as a self-employed individual. And I fully agree that Martin Lewis should amend his advice, because it now seems profoundly ill-advised. 

I must say you have me (only slightly) doubting myself now.  As you say, though 13.4b defines what a connected company is, it's not totally clear to what end as connected companies don't seem referenced anywhere else. 13.4c defines connected charities, too, though again they're not referenced elsewhere.
It seems (and how I read it originally) that the scope of "conected persons" in 6.2 is being expanded / clarified to mean persons, connected companies and connected charities by 13.4.  Whether or not the combination of 6.2 with 13.4 stands up to scrutiny on that basis is a question for a lawyer I guess.  It could be that is just standard form for providing the clarification that the links between persons persist even if another company structure is put in place in the middle.  As I say I am not a lawyer.

If a lawyer does read that as vulnerable, It does seem that in seeking to exploit such minutiae that you could be effectively looking for "Loan Charge 2.0"... as when you read it all together it seems pretty clear (to me at least) what was intended unless you're reading it with a view to exploitation.

Jeremy535897

If A owns Limited Company 1 and is its sole director/employee, and A sets up Limited Company 2 and is its sole director/employee, those two companies are connected by virtue of section 1122(2)(a) CTA and therefore the test in 6.2 is not met. (It wouldn't be met if Company 2 did an entirely different business to Company 1.)
If A owns Limited Company 1 and is its sole director/employee, and A starts a sole trade mirroring the business of Company 1, it is irrelevant that A is connected to Company 1 by virtue of section 993(6)(a) ITA 2007, because A cannot employ A. That is nonsense. But ask the man in the street whether A has furloughed himself when he does the exact same thing for the same people that he used to do, just without the cloak of Company 1, and the man in the street would say, "of course not. That is nonsense." That is why it falls foul of paragraph 2.5 of the Directive.

jfinnie

Jeremy535897 said:

If A owns Limited Company 1 and is its sole director/employee, and A sets up Limited Company 2 and is its sole director/employee, those two companies are connected by virtue of section 1122(2)(a) CTA and therefore the test in 6.2 is not met. (It wouldn't be met if Company 2 did an entirely different business to Company 1.)

I'm not sure the bit highlighted has any relevance.  As soon as you put the same kind of work through the other business it you'd no longer be doing an entirely different business...

Jeremy535897 said:

If A owns Limited Company 1 and is its sole director/employee, and A starts a sole trade mirroring the business of Company 1, it is irrelevant that A is connected to Company 1 by virtue of section 993(6)(a) ITA 2007, because A cannot employ A. That is nonsense. But ask the man in the street whether A has furloughed himself when he does the exact same thing for the same people that he used to do, just without the cloak of Company 1, and the man in the street would say, "of course not. That is nonsense." That is why it falls foul of paragraph 2.5 of the Directive.

Not 100% sure.  The direction in 6.2 is looser than that, and actually says "works for" not "is employed by".  The direction goes to pains to explain what definitions they are using for employed, employee, employer and employment in section 13.1.e.  Who are you "working for" when "self-employed" aka "working for yourself" aka "sole trader" (used interchangeably on the HMRC website around the topic).  if the work doesn't form an employer/employee relationship with the entity that would have previously been the business's end client it seems most likely you are doing the work for yourself...
But anyway it's probably a bit moot if 2.5 gets you anyway.  

In any case, I certainly wouldn't be chancing my arm on this!

Jeremy535897

You miss the points. My first point is that if you own two limited companies of which you are the sole director/employee with entirely different businesses, you would have to furlough yourself from both or neither. My second point is that you can play around with phrases like "work for yourself" etc all you like, but it is long accepted that for connected persons tests, you are not connected to yourself. Nor would becoming self employed be doing work indirectly for the company you own.

In summary, if you are a plumber and a portrait painter, and you own two companies and are their sole director/employee, through one of which you plumb, and through the other you do portrait painting, you can't do either while furloughed from either (but you can furlough yourself from both). If you plumb through your own company and paint as a self employed person, you can furlough yourself from plumbing and still continue to paint, but probably not fix their sink while you are at it.

leitmotif

koru

‘the current weight of evidence is against a 'helicopter money' interpretation for directors’

Having read through the other thread and in light of the information now presented in this thread, I’m tending towards your position. Although I still feel that the nature of the measures for self-employed people is far more akin to helicopter money (handout plus permission to keep trading).

jfinnie

‘As you say, though 13.4b defines what a connected company is, it's not totally clear to what end as connected companies don't seem referenced anywhere else.’

That’s how I see it. There are only two possibilities: 1) ‘person connected’ in 6.2 can reasonably be taken to mean any connected entity (person, company or charity); or 2) ‘otherwise works indirectly for the employer’ in 6.2 can reasonably be taken to extend to any entity connected. As I see it, both are moot.

Jeremy535897

‘If A owns Limited Company 1 and is its sole director/employee, and A starts a sole trade mirroring the business of Company 1, it is irrelevant that A is connected to Company 1 by virtue of section 993(6)(a) ITA 2007, because A cannot employ A. That is nonsense. But ask the man in the street whether A has furloughed himself when he does the exact same thing for the same people that he used to do, just without the cloak of Company 1, and the man in the street would say, "of course not. That is nonsense." That is why it falls foul of paragraph 2.5 of the Directive.’

Are you saying that 6.2 and 13.4 don’t apply ‘because A cannot employ A’?

I’m not convinced by the man-in-the-street argument. I know you intend ‘man in the street’ to mean any right-thinking individual rather than specifically a lay person, but here we’re back to subjective impressions and knee-jerk reactions. If a judge were to be considering what a right-thinking individual would think in this case, he/she wouldn’t be considering what a right-thinking individual would think was abusive, but what a right-thinking individual would think was abusive according to the criteria of the direction. This is a crucial distinction, as if not steered by some criteria, definition or suchlike, it would merely be down to the right-thinking individual’s gut reaction.

I'm glad we're getting into detail now, though.

Jeremy535897

"Are you saying that 6.2 and 13.4 don’t apply ‘because A cannot employ A’?"

To Martin's plan of A becoming self employed and doing the work directly that he would previously have done as an employee of his company, yes. That's why he thought it worked. If it weren't for paragraph 2.5 of the Directive, I think it does. I would argue that, in a perverse way, the conditions of paragraph 6.1(c) are met because he is only furloughed (because of the grant the company would not otherwise have got) due to coronavirus.