Who is a Company Director – a Gloucestershire Overview

What does it mean to be an Officer and a Director of a company?

 What does it mean to be an officer and Director of a company?

It may seem like a daft question but people need to be able to answer the question confidently – or they could get into trouble with HMRC.

Pizza business – slicing up the ownership roles

A Pizza business was issued with a penalty notice of over £138,000 was at issue. It had been charged as a penalty for Newham Pizza Ltd’s deliberate and concealed failure to notify HMRC of a liability to register for VAT. Since the business, a franchise, had applied to be struck off the Companies House register,

HMRC had also issued personal liability notices to Newham’s director, Mr Munaim and his uncle, Mr Malik, who was an employee of the company, making each liable for 50% of the penalty.

This was done under powers conferred by FA 2008, Sch. 41, para. 22. Paragraph 22 allows HMRC to make an officer of the company – specifically a director, shadow director, manager or secretary – liable for a penalty which is payable by the company for a deliberate failure, if that failure is attributable to the relevant individual.

What was the role of Mr Malik? And why was his status contentious?

The case turned on whether Mr Malik was, as he maintained, ‘simply an employee’ – whose remit was limited to making pizzas, phone calls and deliveries – or whether he was an officer of the company. And then, if so, whether the company’s failure was attributable to him.

Paragraph 22(3) provides a reminder that an officer includes a shadow director within the meaning of the Companies Act 2006, s. 251. The relevant wording in s. 251 is that a ‘shadow director’ in relation to a company ‘means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.’

FA 2008, Sch. 41 does not, however, define ‘manager’. This was therefore held to take its normal meaning. The Oxford English Dictionary provides the following definition:
‘A person who manages (a department of) a business, organisation, institution, etc; a person with an executive or supervisory function within an organisation.’

This all had to work within the context of pizza takeaway and delivery businesses which had operated from the premises for some years, morphing periodically in terms of the business entity and personnel involved.

Such ‘phoenix’ businesses have increasingly been the target of anti-avoidance legislation, including the security rules for VAT and other taxes. Here was a test of the effectiveness of the anti-avoidance rules. Had HMRC sufficient powers to bypass a legal structure and find the people behind the mask?

This all has very real implications for people, as your next new client may be operating from premises out of which a succession of businesses has operated. HMRC will be more than aware of the position: for you it could be an unwelcome shock.

In the current case, Mr Malik stated that ‘owners/ managers come and go’ as a result of the business being run as a franchise. Evidence of a number of companies operating from the same address was provided. None had ever registered for VAT. Though dates and names sometimes failed to tally, there were three names that recurred with some persistence: those of Mr Munaim, Mr Malik and one other.

Who is a Company Director Roles – Part 2 to follow

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