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How are non-executive directors taxed?

How are non-executive directors taxed?

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Assuming that the individual concerned is not providing their non-executive directorship services through a personal service company and is providing them directly to a private limited company, should such an individual go on the payroll and be subject to PAYE and NIC as an ordinary employee or could they be treated as self-employed submitting invoices to the company as agreed?

For instance, in most cases a non-executive director will have a variety of other business interests and will not be involved with the company other than attending occasional board meetings. Surely this is not sufficient to deem the individual an employee?

Any comments gratefully received.

 

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By neileg
17th Apr 2013 17:00

PAYE

Because the directors are officers of the company then any payment they get for fulfilling that office is subject to PAYE and NI. It doesn't matter if they are non-executive, HMRC don't care about that.

If they were offering services to the company that was not linked to being a director then you may be able to argue that they are self employed. You might get a tough time from HMRC but it is possible.

I seem to recall special provisions relating to accountants and solicitors who could treat directors fees as self employed income but I may be out of date on that point. Perhaps other contributors may be able to help.

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Glenn Martin
By Glenn Martin
17th Apr 2013 17:22

PAYE
I was non exec FD for. 10 years and was taxed under PAYE as it was my full time job. I did some work for non group companies which I invoiced through my own limited company. I think I would of struggled to get all income through my own company.

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By charlotteponder
18th Apr 2013 12:01

I am a non exec director of a family company and whilst I pay tax through PAYE and am paid through PAYE I have to do a self assessment tax return.

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By Gilly
18th Apr 2013 12:07

PAYE

Had a very similar situation to yours about 10 years ago. HMRC carried out routine PAYE audit, the only thing the inspectors didn't like was the non-exec being paid via invoice. Had to put him on payroll and pay backdated tax and interest.

He was very much part time (an hour's meeting once a quarter), with many different business interests. So while he was genuinely self-employed, in our company he was deemed an employee. There was some grumbling at the time.  The rules haven't changed since then, as far as I know.

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By leicsred
18th Apr 2013 12:16

I came across a similar case where HMRC accepted that a small salary should be put through to cover the time spent on duties as a director, eg board meetings, the rest of his payments were deemed to not relate to his role as a director and were still treated as going through his limited company.

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