It is not just about IR35 - The Case of Alan Nicholson v HMRC

Running small businesses often rely on family members and people we know and trust to manage back office, sales, IT and generally keep our businesses ticking along. What we all must do is ensure that the work they are undertaking can be clearly demonstrated and that the formal payment mechanism is calculated and solely related to the business they are supporting. Without this, we all risk opening ourselves up to investigation by the HMRC, just as with the Case of Alan Nicholson. 

Mr Nicholson had been paying his son for IT support and managing his Website, whilst he was busy trying to deliver his own very physical, work. Unfortunately the payment mechanism was ad hoc and lacked transparency which, ultimately, was the undoing in this case. The summary reads as follows



Conclusion

28. We can understand why the Appellant feels that he should be able to pay his son ‘wages’ as he would have to have done if anyone else had been doing the same work for him. Had the Appellant paid his son on a more time recorded basis or had there been some form of methodology in calculating the amount payable and an accurate record maintained of the number of hours his son worked, then as with any family member on the pay roll of a business, it is unlikely that the expense would have not satisfied the provisions of s 34 TMA.

29. However as HMRC assert, the payments to Mark had a dual purpose. The provisions of s 34 TMA (1)(a) are quite clear. The payments were not incurred wholly and exclusively for the purposes of the Appellant’s trade. They were not directly and solely referable to the carrying on by the Appellant of his trade. There was no direct relationship arithmetically or otherwise between the amount of work Mark did and the payments he received, whether in cash or in kind. The Appellant was helping to support his son whilst at University.

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