NIM12004 - Class 1: Calculating Class 1 NICs for Directors: Fees received by professional partnerships and other companies: Introduction

Regulation 27 of the Social Security (Contributions) Regulations 2001 (SSCR 2001) (SI 2001 No 1004)

Under regulation 27 of SSCR 2001, certain directors fees received by members of professional partnerships are excluded from liability to Class 1 NICs, see NIM12005. This is to deal with situations where companies might want, for example, their legal advisers to attend board meetings as a matter of course and accordingly a partner in the legal practice is always appointed to be a director.

The regulation refers to members of partnerships so that a sole practitioner is not within the regulation and any director’s fees received are liable to Class 1 NICs in the normal way.

The regulation also excludes directors’ fees from Class 1 NICs contributions where:

• a company has one of its employees or directors as a director of another company, or
• a company has a right to appoint an individual to be a director of another company (nominee director), and
• the fees are paid to the first company by the director.

There can still be an exclusion from Class 1 NICs if there is no formal right to appoint adirector to a second company but in those circumstances there is a control test (see NIM12009)

It should be noted that, for example, fees to a director of a Building Society are within regulation 27, if the other conditions are satisfied, because of the wider definition of “company” for this regulation, regulation 27(5), than that used elsewhere for National Insurance Contributions.

Regulation 27 is similar to ESC A37 for tax but note that it does not exactly mirror the tax concession. From 6 April 2018, ESC A37 was enacted by the enactment of Extra Statutory Concessions Order 2018. For further information see EIM02500.