Sacked director employed his wife to save paying tax

A recent tribunal ruling has examined alleged misconduct involved a company director employing his wife to provide HR services. The company claimed (among other wrongdoing) that a Director had arranged for his wife to be paid a salary even though she was not a genuine employee of the company.

The claimant took a corresponding reduction in salary with the net effect being to reduce his liability to tax. This constituted a fraud on the revenue. He claimed that a similar arrangement was put in place by another director, as well as by the company’s Chairman, but they both insisted that their wives were genuine employees.

Giving evidence to the tribunal, the Chairman pointed out that the employee’s wife had no HR qualifications, worked entirely from home but did not have either an official email address or a company mobile telephone.

Furthermore, she had received no training and taken no holiday but for working an average 8 to 10 hours per week was being paid £36,000 per annum. It then emerged that the wife of the other director was employed as his PA but she too worked exclusively from home, had the same lack of impact on the company’s training, sickness and holiday records and also lacked a company email address and mobile for working 10 to 15 hours per week, she was paid £18,500 a year.

The employment judge noted that the three wives were the only employees on the company’s payroll who were not entitled to the bonus payable on either of two schemes. The explanation that this was because they worked from home ignored the fact that other employees doing the same still received the bonus.

The Judge decided, on the balance of probabilities that the three senior directors had all agreed to pay bogus salaries to their wives to reduce their own tax liabilities. However, this did not help the particular employee in this case, who was described as a “quite unsatisfactory witness” as he was

found to have acted dishonestly in other respects, including the submission of false and inflated expense claims.

The company was entitled to summarily dismiss him without notice, the Judge concluded. What has become of the other wives’ employment status remains unknown…!

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