Further Extra Statutory Concessions are to be legislated

Financial Loss Allowance and some employment income to be treated as trading income

HMRC has been carrying out a review of all its existing ESCs after the House of Lords ruled in the Wilkinson case in 2005 that Inland Revenue, now HM Revenue & Customs, had less administrative discretion to make concessions that depart from the strict statutory position than had previously been believed to be the case.

In the subsequent period HMRC has been reviewing all the concessions and  has either withdrawn, enacted or let them remain as they are within the (reduced) administrative powers of HMRC.

The eighth consultation on ESCs was undertaken between September and December 2017 and the response document was published in February 2018 with the draft Statutory Instrument, to give legal effect to the old concessions, published in January 2018 The Enactment of Extra-Statutory Concessions Order 2018.

One of the concessions which is being replaced, ESC A37, allowed directors’ fees received by partnerships and companies to be treated as trading income for income tax purposes rather than employment income, subject to certain conditions. The concession also applied where a company A had the right to appoint a director to the board of another company B. Where this was the case and the director was required to hand over to company A any fees received for the directorship of company B, and did so, (and company A is subject to Corporation Tax), those fees were treated as the income of company A and not the director, and tax is not deducted under Pay As You Earn (PAYE).

Another administrative practice, which is being enacted at the same time, allowed professional practitioners to treat incidental income from an office or employment as part of their trading or professional income for tax (but not National Insurance) purposes.

The other administrative practices that are to be enacted cover Financial Loss Allowances and payments from Medical Committees to members.

Financial Loss Allowance (FLA). FLA can be paid to members of various bodies as recompense for a loss of income while they undertake their public duties. HMRC’s published practice was to accept that FLA paid to an individual who is otherwise employed is not taxable, provided the payment does no more than replace the salary the recipient would otherwise have received from their employer.

Where FLA is paid to voluntary office holders who are otherwise self-employed the FLA is treated as a taxable receipt of the individual’s business.

The final change covers payments from Local Medical Committees to part-time committee members and such payments can be treated as trading income rather than employment income provided various conditions are satisfied.