Whether there was a contract of service or for services

Two directors and their spouses owned the shares in the taxpayer which was a petrol station business. Consultancy agreements existed between the taxpayer and the directors under which the former paid the latter monthly fees for consultancy services. The taxpayer said these were contracts for services and wished to deduct the payments as expenses of its trade but HMRC said they were the directors’ remuneration.

The First-tier Tribunal reviewed the contracts and decided they should be regarded as contracts of service. Viewed realistically because ‘no services were provided by the consultants other than those provided by the directors’ the payments were an award for the services as director. 

Although this was enough to dismiss the taxpayer’s appeal the tribunal also considered whether the factors to establish employment set out in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 1 All ER 433...