NIM12005 - Class 1: Calculating NICs for Directors: Fees received by professional partnerships

Regulation 27(1) & Regulation 27(2) of the Social Security (Contributions) Regulations 2001 (SSCR 2001) (SI 2001 No 1004)

Fees are liable to Class 1 NICs where received in respect of directorships even if members of a professional partnership, such as solicitors, hold them. However, regulation 27(1) and(2) of SSCR 2001 excludes those fees from Class 1 NICs where all of the following apply:

• the director is a partner in a firm carrying on a profession (regulation 27(2)(a)),
• it is a normal practice of the profession and of the particular practice (regulation 27(2)(b)),
• the fees have to be paid to the firm under the terms of the partnership (regulation 27(2)(c)), and
• the payment is an insubstantial part of the gross receipts of the firm (regulation 27(2)(d)).

Regulation 27(2)(a) does not include those professional people practising alone and not in partnership.

In order to qualify under regulation 27(2)(b), both parts need to be considered. It might be common practice for solicitors to be represented on boards of directors but it might not be normal for the practice.

Regulation 27(2)(c) is also a question of fact and in view of its terms, you should normally expect to find the requirement in writing in the partnership agreement.

For advice on “insubstantial”, see NIM12006.