RTI returns due for payments to director

In Purple Sunset Limited v HMRC [2023] TC08880, the First Tier Tribunal (FTT) found that payments made to a director should have been reported under Real-Time Information (RTI) as a director is included in the definition of an employee for RTI purposes.

• Purple Sunset Limited (PSL) had a single shareholder/director, Mr McDonald.
• Prior to 2018-19, Mr McDonald received income, described as ‘fees’, from PSL.
  • This income was included in Mr McDonald’s self-assessment tax return as earnings from employment.
  • It was common ground that the payments did not represent Dividend income.
• PSL did not file Real-Time Information (RTI) returns or pay National Insurance Contributions (NICs) in respect of the amounts paid to Mr McDonald.
• Following a compliance visit in December 2018, HMRC raised NICs assessments totalling £37,800 and charged penalties for failing to file RTI returns of £3,300.
• PSL Appealed the RTI penalties on the grounds that Mr McDonald did not have an employment contract with PSL, but was merely a director.
  • PSL argued that Mr McDonald received his money in his capacity of director and this meant that there was no requirement to file RTI returns.

The First Tier Tribunal (FTT) found that:

• As a director, Mr McDonald was an Officeholder.
• Section 5 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003 provides that, for Income Tax purposes, the term ‘employee’ includes officeholders.
  • Mr McDonald was, therefore, an employee for the purposes of Income Tax, notwithstanding that he did not have an employment contract with PSL.
• The PAYE Regulations impose an RTI obligation in relation to all employees.
  • Regulation 2 of the PAYE Regulations provides that the meaning of ‘employee’ is the same as the meaning in s.5 ITEPA 2003. 'Employee' for RTI purposes, therefore, includes officeholders. 
• Directors such as Mr McDonald are included in the RTI reporting requirement.
  • PSL had an RTI filing obligation which it failed to discharge.

The FTT went on to consider whether PSL had a Reasonable excuse for its failure to file RTI returns:

• Mr McDonald had not asked the company’s accountants for advice about whether or not to file RTI returns.
  • It was not possible for Reliance on an adviser to provide a reasonable excuse.
• It was not objectively reasonable for a person in Mr McDonald’s position to have been ignorant of the RTI requirements.

There was no reasonable excuse. PSL's appeal was dismissed.

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External link

Purple Sunset Limited v HMRC [2023] TC08880