SPC00431

NATIONAL INSURANCE CONTRIBUTIONS – directors fees paid by related companies – whether companies carrying on business in association – yes – whether reasonably practicable to aggregate the earnings – yes

THE SPECIAL COMMISSIONERS

	SAMUELS & SAMUELS LIMITED	Appellant

	- and -

	DAVID RICHARDSON
	(HM INSPECTOR OF TAXES)	Respondent

		Special Commissioner:	DR JOHN F AVERY JONES CBE

Sitting in public in London on 13 September 2004

Jeffrey C Samuels, director, for the Appellant

Kevin Gleig, HM Inspector of Taxes, Central England Appeals Unit, for the Respondent

© CROWN COPYRIGHT 2004

DECISION

1.	Samuels & Samuels Limited appeals against Notices of Decision that the earnings of Mr Jeffrey C Samuels in the years 1995/1996 to 1999/2000 from the companies listed in the Notice of Decision fall to be aggregated and treated as a single payment of earnings in respect of one such employment.  Mr Jeffrey Samuels appeared for the Appellant and Mr Kevin Gleig for the Inspector.
2.	I find the following facts.
(1)	The Appellant has traded since 1980 as an insurance broker.  At various times it acquired the following companies: Davies & Samuels (London) Ltd, HDS Financial Services Ltd, Valentine & Wolff Ltd, and Hillman Insurance Consultants Ltd.  All are wholly owned except for Hillman Insurance Consultants Limited which is owned as to 40 per cent by HDS Watford Limited, 10 per cent by Mr Samuels and 40 per cent by Priorclaim Limited, an independent company (I was given a list of the holders of 90 shares while another page of the annual return states that 100 shares are issued; the accounts to 30 April 2000 for HDS Watford Limited state the holding as 45 per cent.  I shall assume that only 90 shares are issued, which would give 44.4 per cent).  All the companies are concerned with insurance broking.
(2)	The Appellant’s accounts to 31 January 1999 state in the director’s report that “the principal activity of the company continued unchanged as that of insurance broking.”  The accounts show commissions receivable of £250,549 and administrative expenses listed separately totalling £252,220, including wages (£50,914), commissions £41,100), and rent (£28,000: the building is owned by Mr Samuels).  The Appellant’s accountants told the Inspector that the Appellant acted as an administration company and as an investment company.  The other companies do not have employees and so I infer that the Appellant employed the employees working for the other companies and provided administrative services to the other companies.
(3)	From January 2000 PAYE returns were made by Davies & Samuels (London) Limited trading as Welbeck Wells for which the Appellant pays that company a fee.  Before that date returns were made by “Hill, Davies & Samuels” whose identity is unclear but may be a trading name of the Appellant.
(4)	The Appellant also provided similar administrative services to another independent company.
(5)	 The amounts paid to Mr Samuels by each company were:
Year	Company	Director on 6 April 	Total earnings from company	NICs paid  	
95/96	Samuels & Samuels Ltd	Yes	?}	None	
	HDS Watford Ltd	Yes	?} 	Total  	None	
	Hillman Insurance Consultants Ltd	Yes	?}	£9,000.	None	
	Davies & Samuels (London) Ltd	Yes	?}	None	
	Valentine & Wolff Ltd	Yes	?}	None	
96/97	Samuels & Samuels Ltd	Yes	£3,000.00	None	
	HDS Watford Ltd	Yes	£3,000.00	None	
	Hillman Insurance Consultants Ltd	Yes		None	
	Davies & Samuels (London) Ltd	Yes	£3,000.00	None	
	Valentine & Wolff Ltd	Yes	£3,000.00	None	
97/98	Samuels & Samuels Ltd	Yes	£3,200.00	None	
	HDS Watford Ltd	Yes		None	
	Hillman Insurance Consultants Ltd	Yes		None	
	Davies & Samuels (London) Ltd	Yes	£3,000.00	None	
	Valentine & Wolff Ltd	Yes	£3,200.00	None	
98/99	Samuels & Samuels Ltd	Yes	£3,300.00	None	
	HDS Watford Ltd	Yes	£3,300.00	None	
	Hillman Insurance Consultants Ltd	Yes	£3,300.00	None	
	Davies & Samuels (London) Ltd	Yes	£3,300.00	None	
	Valentine & Wolff Ltd	Yes	£3,300.00	None	
99/00	Samuels & Samuels Ltd	Yes	£3,430.00	None	
	HDS Watford Ltd	Yes	£3,430.00	None	
	Hillman Insurance Consultants Ltd	Yes	£3,430.00	None	
	Davies & Samuels (London) Ltd	Yes	£3,430.00	None	
	Valentine & Wolff Ltd	Yes	£3,430.00	None	

3.	It is not clear from the facts found whether the Appellant provides only administrative services or itself carries on insurance broking.  From the description of the company’s activity in the Director’s Report and the income being described as commissions receivable I find that it did carry on an insurance broking business.  This seems to be of little importance since even if it were not carrying on that business it is clearly providing administration for other companies carrying on that type of business.
4.	Schedule 1 of the Social Security Contributions and Benefits Act 1992 provides:
Class 1 contributions where earner employed in more than one employment
1.—
(1)	For the purposes of determining whether Class 1 contributions are payable in respect of earnings paid to an earner in a given week and, if so, the amount of the contributions — 
(a)	all earnings paid to him or for his benefit in that week in respect of one or more employed earner's employments under the same employer shall, except as may be provided by regulations, be aggregated and treated as a single payment of earnings in respect of one such employment; and
(b)	earnings paid to him or for his benefit in that week by different persons in respect of different employed earner's employments shall in prescribed circumstances be aggregated and treated as a single payment of earnings in respect of one such employment;
and regulations may provide that the provisions of this sub-paragraph shall have effect in cases prescribed by the regulations as if for any reference to a week there were substituted a reference to a period prescribed by the regulations.
(2)	Where earnings in respect of employments which include any contracted-out employment and any employment which is not a contracted-out employment are aggregated under sub-paragraph (1) above and the aggregated earnings are not less than the current lower earnings limit, then, except as may be provided by regulations— 
(a)	the amount of the primary Class 1 contribution in respect of the aggregated earnings shall be determined in accordance with sub-paragraph (3) below; and
(b)	the amount of the secondary Class 1 contribution in respect of the aggregated earnings shall be determined in accordance with sub-paragraph (6) below.
(3)	The amount of the primary Class 1 contribution shall be the aggregate of the amounts obtained— 
(a)	by applying the rates of primary Class 1 contributions that would apply if the aggregated earnings were all attributable to contracted-out employments— 
(i)	to the part of the aggregated earnings attributable to any such employments, or
(ii)	if that part exceeds the current upper earnings limit, to so much of that part as does not exceed that limit; and
(b)	if that part is less than that limit, by applying the rate of primary Class 1 contributions that would apply if the aggregated earnings were all attributable to employments which are not contracted-out to so much of the remainder of the aggregated earnings as, when added to that part, does not exceed that limit.
(4)	In relation to earners paid otherwise than weekly, any reference in sub-paragraph (2) or (3) above to the lower or upper earnings limit shall be construed as a reference to the prescribed equivalent of that limit.
(5)	The power under sub-paragraph (4) above to prescribe an equivalent of a limit includes power to prescribe an amount which exceeds, by not more than £1.00, the amount which is the arithmetical equivalent of that limit.
(6)	The amount of the secondary Class 1 contribution shall be the aggregate of the amounts obtained— 
(a)	by applying the rates of secondary Class 1 contributions that would apply if the aggregated earnings were all attributable to contracted-out employments to the part of the aggregated earnings attributable to any such employments; and
(b)	by applying the rate of secondary Class 1 contributions that would apply if the aggregated earnings were all attributable to employments which are not contracted-out to the remainder of the aggregated earnings.
(7)	Where any single payment of earnings is made in respect of two or more employed earner's employments under different employers, liability for Class 1 contributions shall be determined by apportioning the payment to such one or more of the employers as may be prescribed, and treating a part apportioned to any employer as a separate payment of earnings by him.
(8)	Where earnings are aggregated under sub-paragraph (1)(b) above, liability (if any) for the secondary contribution shall be apportioned, in such manner as may be prescribed, between the secondary contributors concerned.
5.	These statutory rules are given effect, for the material times, by Social Security (Contributions) Regulations 1979.  Regulation 12 states:
(1)	For the purposes of determining whether earnings-related contributions are payable in respect of earnings paid to or for the benefit of an earner in a given earnings period and, if so, the amount of the contributions, where in that period earnings in respect of different employed earner's employments are paid to or for the benefit of the earner-
(a)	by different secondary contributors who in respect of those employments carry on business in association with each other and the amount of the earnings paid in respect of one or more of those employments is less than the current lower earnings limit (or its equivalent);  or
(b)	by different employers, of whom one is by virtue of the provisions of Schedule 3 to the Social Security (Categorisation of Earners) Regulations 1978, treated as the secondary contributor in respect of each of those employments;  or
(c)	by different persons, in respect of work performed for those persons by the earner in those employments and in respect of those earnings, some other person is by virtue of the provisions of the said Schedule 3 treated as the secondary contributor,
the earnings paid in respect of each of the employments referred to in this paragraph shall, unless in a case falling under sub-paragraph (a) of this paragraph it is not reasonably practicable to do so, be aggregated and treated as a single payment of earnings in respect of one such employment.
(2)	Where, under the provisions of the last preceding paragraph, earnings are aggregated, liability for the secondary contributions payable in respect of those earnings shall be apportioned between the secondary contributors in such proportions as they agree amongst themselves, or, in default of agreement, in the proportions which the earnings paid by each bear to the total amount of the aggregated earnings.
6.	It is common ground that a director has an annual earnings period.
7.	The first question is whether the Appellant and the other companies listed in paragraph 2(1) above “carry on business in association” within regulation 12(1)(a).  Mr Samuels contends that a directorship is different from an employment and must relate only to a particular company.   He points out that each of the companies is not carrying on identical type of business and each one has its own customers.  He also contends that in the year ended 30 April 2000 HDS Watford Limited was a dormant company and was not carrying on any business and so cannot have been carrying on a business in association with the other companies.  
8.	Mr Gleig contends that I should look at the facts as a whole without regarding any particular fact being determinative, and conclude that they were.
9.	There is no definition of carrying on business in association; it is an ordinary expression without any technical meaning.  In my view the following factors are significant but none of them is decisive: all the companies carry on business related to insurance broking either directly or the administration of insurance broking activities; administration is provided from the Appellant’s office; the Appellant employs all the employees of the group (including Hillman Insurance Consultants Limited) and another group company makes the PAYE returns for a fee; the Appellant provides administrative services for all the companies; Mr Samuels is a director of all the companies; and the companies are under common ownership (although Hillman Insurance Consultants Limited is not within the group it is under Mr Samuels’ ultimate control).  Standing back and looking at all these factors I conclude that the companies were carrying on business in association on the ordinary meaning of that expression.  While I agree that Mr Samuels’ duties as director relate to each company separately this does not mean that the companies themselves are not carrying on business in association.
10.	I am, however, puzzled by HDS Watford Limited which was according to its accounts dormant in the year to 30 April 2000 whose balance sheet at 30 April 2000 is identical to that at 30 April 1999 and states that during the year to 30 April 1999 director’s emoluments of £3,300 were charged as is shown as paid in the table above.  Since £3,430 was been paid in the year to 5 April 2000 as shown in the table, it is difficult to see why this is not reflected in the accounts to 30 April 2000 or 30 April 1999.  Mr Samuels said that the payment would have been charged to the director’s loan account, but the creditors (and also the debtors) have not changed.  In the absence of any further explanation I am not satisfied that the fee of £3,430 does not relate to a period when HDS Watford Limited was carrying on business in association with the other companies.
11.	The second issue is whether it is “not reasonably practicable” in the words at the end of regulation 12(1) for the earnings to be aggregated and treated as a single payment of earnings in respect of one such employment (or in this case an office).  This is also an undefined expression.  Mr Samuels points to the work, and hence the cost, required in aggregating the payments and making consequential changes to the corporation tax deduction in each company.  
12.	Mr Gleig stated that it took the officer about 15 minutes to aggregate the payments for each of the years under appeal.  He referred me to some cases on health and safety legislation where the same expression is used in the context of whether a person failed to take reasonable measures to ensure so far as reasonably practicable that premises are safe and without risk to health.
13.	I prefer to stand back and ask whether aggregation is not reasonably practicable on the ordinary meaning of that expression.  I find it difficult to apply to the present case the test in the health and safety cases which depend on weighing up the risk against the cost and the time and trouble necessary to avert the risk.  The context of those cases is too far removed to be helpful here.  On the ordinary meaning of the expression I can see nothing impracticable in making the aggregation; it is a simple calculation.  In my view it is reasonably practicable to make the aggregation.
14.	Accordingly I uphold the Notice of Decision and dismiss the appeal.

J F AVERY JONES

SPECIAL COMMISSIONER

                                             Release Date: 20 September 2004

SC 3019/03

Authorities referred to in skeletons and not referred to in the decision:
Norman v Golder 26 TC 293
T. Haythornthwaite and Sons Ltd v Kelly 11 TC 657
Hurley v Taylor 71 TC 268
Edwards v National Coal Board [1949] 1 All ER 743
Mailer v Austin Rover Group [1989] 2 All ER 1087
Venables v Hornby [2004] STC 84
Liesbosch v Edison  [1933] AC 449