Non-Executive Directors: Remuneration Taxation
6th June 2024
Non-Executive Directors (NEDs) are crucial members of a company’s leadership team and therefore adequate remuneration is key. However, the arrangement for paying NEDs can often be handled incorrectly.
Directors’ Duties Income
It is not uncommon to see NEDs prepare invoices and submit these to the company they act for to receive payment for their services, either via their own Limited company or in a sole trader capacity.
However, HMRC’s stance is to treat Non Executive Directors consistently with standard directors, therefore NEDs should be remunerated through the payroll. Consequently PAYE & National Insurance liabilities arise on the payments, and it is not sufficient to simply invoice for NEDs directors’ duties.
The basis for this approach is that NEDs are ‘office holders’ just like standard directors and under tax legislation ‘office holders’ are treated as employees of the company. Whether a NED holds other similar roles with separate companies has no bearing on this, if they do have several positions across other companies then they will have several employments.
Separate Roles
NEDs holding two or more positions within the same company can separate out remuneration for services outside the scope of their director duties, for example consultancy services.
Separate contracts should be drawn up for each role and carefully worded to demonstrate that they are distinct, to mitigate the risk of challenge from HMRC that both contracts are subject to PAYE & NI. It should also be considered whether the non-director duties fall within the scope of IR35.
Expenses
Companies will often reimburse NEDs for expenses, for example travelling to board meetings, food and accommodation. This reimbursement would also be taxable on the NED when fulfilling their director duties.
Moving Forward
We expect HMRC to continue their recent campaigns to review working arrangements and ensure remuneration of roles is treated properly.
Get in Touch
Please contact your local office for further information if you are concerned about your own arrangements as a NED, or your company’s payments to NEDs.
Disclaimer - All information in this post was correct at time of writing.
