The First-tier Tribunal (Tax Chamber) (FTT) has decided in Corbett v HMRC that removing a taxpayer from a company's payroll before a sale of that company did not end her employment for the purposes of claiming entrepreneur's relief.
Mrs Corbett claimed entrepreneurs' relief from capital gains on selling shares in Optivite International Limited (Optivite), pursuant to section 169H et seq of Taxation of Chargeable Gains Act 1992 (TCGA).
HMRC disallowed Mrs Corbett's claim for entrepreneurs' relief on the basis that she had failed to satisfy the condition for relief stipulated in section 169I(6)(b) TCGA, namely, that the person in question must be an officer or employee of the company.
Mrs Corbett had worked as a clerical assistant at Optivite until February 2009, when her employment came to an end. The reason for this was that Optivite was to be sold and her husband, a director of Optivite, was concerned that a potential purchaser might be deterred from purchasing a company that employed spouses of senior executives.
The company was sold in October 2009. There had been no formal contract of employment between Optivite and Mrs Corbett during the period February to October 2009. HMRC's position was that Mrs Corbett was not an employee or officer of the company during this eight month period. Mrs Corbett argued, however, that she had continued to perform her duties as a clerical assistant during this time and that her husband was remunerated for the work she carried out during this period with funds which were paid into their joint bank account and accordingly the condition in section 169I(6)(b) was satisfied and she was entitled to entrepreneurs' relief.
The FTT concluded that there was an implied contract of employment between the company and Mrs Corbett during the disputed period. It was enough that Mrs Corbett had continued her duties as a clerical assistant and that her salary was directed via her husband into their joint account. She was therefore entitled to entrepreneurs' relief and her appealed was allowed.
Although fact-specific, this case does demonstrate the importance, when restructuring or selling a company, of ensuring that the relevant criteria for entrepreneurs' relief are maintained throughout the relevant period if relief is not to be inadvertently lost. Taxpayers can expect HMRC to adopt a strict approach when considering claims for relief.