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Mother knows best: the case of the shadow Director

Posted on June 30, 2015

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A recent case demonstrates the importance of providing full information to HMRC and other authorities, in this case in relation to employment status and taxation of income  (Michael Rangos v The Commissioners for Her Majesty's Revenue and Customs UKFTT 0262 (TC)).  It also serves as a useful reminder that HMRC may view an individual as a director or employee, and tax them accordingly, based on their activities and the level of their control and involvement in a business – irrespective of what the individual’s job title is.

Mr Rangos was in the ticket tout trade.  For a couple of years, he was the managing director of a company called Get Me Tickets Limited.  At the time, one of his part-time employees was a university student, Ms Beale, who handled phone calls.

Get Me Tickets Limited (“GMT”) was closed down in 2006 following an investigation by the BBC programme “Watchdog”.

A new company, Ticket Tout Limited, was then set up, within only a few days of GMT being shut down.  According to Mr Rangos, this company was established by Ms Beale (by then, a graduate) who ran the business; Mr Rangos’ only involvement was to help with the supply of tickets, because he had the contacts in the trade.  He argued that he was a self-employed consultant.

The Tribunal’s view was somewhat different.  It was concluded that Mr Rangos was “the driving force” behind the company, and was “integral to the business, control[ing] its bank accounts and decid[ing] how it would operate”.  The Tribunal felt it was unlikely that Ms Beale, a recent graduate with limited experience in the sector and no experience of setting up companies, would have decided to set up a company to carry on exactly the same business as GMT within days of that company having been shut down. 

It didn’t help that the new company was originally running from Mr Rangos’ own flat, with the help of ex-employees of GMT as well as Ms Beale.

Ms Beale’s evidence was also unhelpful – as far as Mr Rangos was concerned.  The Official Receiver carried out a statutory investigation into the new company, interviewing Ms Beale on two separate occasions.  At first, Ms Beale claimed that she was responsible for the company and that Mr Rangos had no involvement, other than supplying contacts.  By the second interview, a couple of months later, Ms Beale confirmed that Mr Rangos was indeed very closely involved.  According to the case transcript “she had spoken to her mother … and her mother had advised her to tell the truth”.

Wise words indeed.  Mr Rangos was ultimately found to be a shadow director and employee of the company, and to have received payments from it which should be treated as income.  There was a deliberate and wilful failure to deduct tax under PAYE from those payments and thus Mr Rangos was directed by the Tribunal to pay tax together with interest on the payments received.

A recent case demonstrates the importance of providing full information to HMRC and other authorities, in this case in relation to employment status and taxation of income  (Michael Rangos v The Commissioners for Her Majesty's Revenue and Customs UKFTT 0262 (TC)).  It also serves as a useful reminder that HMRC may view an individual as a director or employee, and tax them accordingly, based on their activities and the level of their control and involvement in a business – irrespective of what the individual’s job title is.

Mr Rangos was in the ticket tout trade.  For a couple of years, he was the managing director of a company called Get Me Tickets Limited.  At the time, one of his part-time employees was a university student, Ms Beale, who handled phone calls.

Get Me Tickets Limited (“GMT”) was closed down in 2006 following an investigation by the BBC programme “Watchdog”.

A new company, Ticket Tout Limited, was then set up, within only a few days of GMT being shut down.  According to Mr Rangos, this company was established by Ms Beale (by then, a graduate) who ran the business; Mr Rangos’ only involvement was to help with the supply of tickets, because he had the contacts in the trade.  He argued that he was a self-employed consultant.

The Tribunal’s view was somewhat different.  It was concluded that Mr Rangos was “the driving force” behind the company, and was “integral to the business, control[ing] its bank accounts and decid[ing] how it would operate”.  The Tribunal felt it was unlikely that Ms Beale, a recent graduate with limited experience in the sector and no experience of setting up companies, would have decided to set up a company to carry on exactly the same business as GMT within days of that company having been shut down. 

It didn’t help that the new company was originally running from Mr Rangos’ own flat, with the help of ex-employees of GMT as well as Ms Beale.

Ms Beale’s evidence was also unhelpful – as far as Mr Rangos was concerned.  The Official Receiver carried out a statutory investigation into the new company, interviewing Ms Beale on two separate occasions.  At first, Ms Beale claimed that she was responsible for the company and that Mr Rangos had no involvement, other than supplying contacts.  By the second interview, a couple of months later, Ms Beale confirmed that Mr Rangos was indeed very closely involved.  According to the case transcript “she had spoken to her mother … and her mother had advised her to tell the truth”.

Wise words indeed.  Mr Rangos was ultimately found to be a shadow director and employee of the company, and to have received payments from it which should be treated as income.  There was a deliberate and wilful failure to deduct tax under PAYE from those payments and thus Mr Rangos was directed by the Tribunal to pay tax together with interest on the payments received.

 
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