In Susan Corbett v HMRC [2014] TC 03435, a wife, who had apparently resigned from her husband’s business was still treated as an employee for the purposes of Capital Gains Tax (CGT) relief.
For Entrepreneurs' Relief (ER) to apply to a disposal of shares:
- The company must be an individual’s “personal company”: the individual must own at least 5% of its ordinary share capital and have at least 5% of the voting rights for the year before the disposal.
- The company must be a trading company or the holding company of a trading group.
- The individual must have been an officer or employee of the company or one of the companies in the trading group during that whole year.
HMRC refused ER on the ground that Mrs Corbett was not employed during the year preceding the transfer of her husband’s company because she received no consideration for her services.
- Mrs Corbett had been an employee of her husband’s company, being his paid clerical assistant.
- She resigned in February 2009 and was given a P45 and P14.
- She continued working in exactly the same role and a pay rise (of the same amount she was originally paid) was given to her husband to compensate her for the loss of her salary.
- No reference was made to her being employed in the share sale agreement. The reason for the above was that the purchaser of the company did not allow for the employment of spouses.
The First Tier Tax tribunual (FTT) held ER was available to her as an employee because:
- Mrs Corbett had the same responsibilities at the company after her apparent resignation, and
- her husband actually received her salary on her behalf.
Comment
The facts of this case are unusual and there are potential PAYE ramifications for the company, not also forgetting the National Minimum Wage regulations. There may be occasions where shareholders such as spouses are working in what HMRC would describe as "disguised employment" and might contemplate a claim that they are an employee or de facto director. Alternatively spouses may be company secretaries and part-time workers.
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