EIM02506 - Employment income: directors’ fees received by companies: exemption from charge to Income Tax under Part 2 of ITEPA: process

As shown at EIM02504, directors’ fees paid to a company may be exempt from charge to Income Tax under Part 2 of ITEPA and charged instead as receipts of a trade carried on by that company. EIM02505 provides details of the conditions that must be met before this treatment of the directors’ fees can be allowed.

This means that where a director is appointed to a paying company by an appointing company, and hands over his fees from the paying company to that appointing company, those fees may be treated as a receipt of a trade carried on by the appointing company.

The Inspector dealing with the accounts of the appointing company will decide whether the fees handed over are to be treated as income of that company in accordance with CT175. Where a company makes a request for such treatment to be allowed this should therefore be passed immediately to that Inspector.

Where the Inspector dealing with the accounts of the appointing company considers the fees are assessable on that company in accordance with CT176, the fees should not be charged on the director as employment income by the paying company.

The Inspector dealing with the accounts of the appointing company will instruct the office dealing with the paying company to code the directors’ fees as follows:

• where the appointing company is chargeable to corporation tax, code NT should be applied
• where the appointing company is not within the charge to corporation tax, for example a non-resident company which is not carrying on a trade in the United Kingdom through a branch or agency, code BR should be applied

In some cases, a director receiving remuneration which is regarded as income of the appointing company may also receive remuneration from the paying company which is regarded as the director’s own income, for example from a separate office or employment with that company. In such cases, the notification showing code NT which is sent to the paying company should be accompanied by a letter explaining to which remuneration code NT refers and saying that any other remuneration must be taxed under PAYE in the normal way.

In any case where it is established that remuneration received by a director from the paying company will not be handed over to the appointing company, that remuneration should be regarded as income of the director chargeable as employment income.