Directors earnings

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    I am currently dealing with a CTB appeal and would appreciate some comments on my interpretation of the law.

    The claimant and her partner are the sole directors of a Ltd. company. The company took out a business loan of £50,000. The ‘company’ has then been paying money from it’s current account into the (largely undeclared) personal accounts of the directors. The sums involved amount to nearly £20,000 in just over 6 months. The claimant and her partner have stated that they are operating their personal accounts to meet their living expenses. There are no detailed accounts as the company is not yet trading, so no info about directors remuneration etc.

    I have revised the decision prior to appeal and treated them as employed earners (they had been treated as self employed) – but the only CD I could find to back this up was CH/2387/2002. Does anyone know of any others? I understand that directors are generally treated as employees in law, but hazy on caselaw/reasons. Is it to do with tax laws?

    I have decided to treat the monies paid into the claimants’ personal accounts as earned income over the six month period because the monies ‘have their origin in’ the employment and are therefore derived from it (R(SB)21/86)

    I understand that for capital purposes the value of the company should be disregarded as they are in the position of partners and are working for the company (reg.49(5) and (6)), however this is not really an issue as the company made a net loss of £34,000 last financial year due to the loan so no net value/shares to consider.

    Capital of their personal bank accounts is being taken into account as with any other claimant.

    Do other agree with my decisions in this scenario? Does anyone have any CDs which might be useful?

    Thanks very much!


    The directors and company secretary of a limited company are employees because the limited company has the status of a person in law – so the entity of the company employs all those who work for it.

    As for your decisions, what you have done sounds eminently reasonable to me (I speak as the director of a limited company myself). Can’t help you out with caselaw, but I’m sure KevinD will be along shortly…

    Kevin D

    Um, I might be along, but Emma’s already cherry picked the only CD I can find that is right on the money!

    Other CDs that *may* (remotely) have relevance are:

    [b:eeaa65914b]CH/3393/2003[/b:eeaa65914b] (drawings / loans may be income – not related to earnings necessarily)

    [b:eeaa65914b]R(H) 05/05 – CH/3013/2003[/b:eeaa65914b] (drawings on an overdraft are NOT income)

    [b:eeaa65914b]MORRELL v SoS for Work & Pensions (2003) EWCA Civ 526[/b:eeaa65914b]
    aka [b:eeaa65914b]R(IS) 06/03 – CIS/5140/2001[/b:eeaa65914b] (drawings / loan as income)

    [b:eeaa65914b]LEEVES v Chief Adj Officer (1998) EWCA Civ 1706 ELR 90
    aka R(IS) 5/99[/b:eeaa65914b]

    Good luck….

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