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HMRC internal manual

Compliance Operational Guidance

Alternative rights of recovery (PAYE directions): primary class 1 NICs: directors: fees, dividends and loan accounts


Fees are liable to Class 1 NIC where received in respect of directorships even if members of a professional partnership hold them. However, Regulation 27 SSCR 2001 excludes those fees where

  • the director is a partner in a firm carrying on a profession, and
  • it is normal practice of the profession and of the particular practice, and
  • the fees have to be paid to the firm under the terms of the partnership, and
  • the payment is an unsubstantial part of the gross receipts.

Further advice on Class 1 NICs and Fees can be found at NIM12005 onwards.


Directors receive dividends as shareholders in the company and not in their capacity as directors. Valid dividends are not earnings for the purposes of NIC. For more information on ultra vires dividends, see INS44295. 

Loan Accounts

Payments on account of remuneration are not considered earnings within Sections 3 and 6 SSCBA 1992 until properly voted or otherwise authorised. However, Regulation 22 SSCR 2001 treats as remuneration any payment to or for the benefit of a director where

  • it would not otherwise be earnings within Sections 3 and 6 SSCBA, and
  • it is made on account or by way of an advance on a sum which would be earnings.

You will then need to identify what remuneration a director is entitled to and when that entitlement arises.

Detailed guidance on director loan accounts and associated primary Class 1 NICs liabilities can be found at NIM12000 onwards.

If an employer or liquidator writes off a loan to a director without anything from the employee in return then the amount written-off becomes earnings and will be liable for primary Class 1 NICs at the time the loan is written-off (NIM02210 refers). Therefore, where you identify that an overdrawn loan account relates to payments on account of remuneration and a direction appears to be appropriate ((This content has been withheld because of exemptions in the Freedom of Information Act 2000) ) you should also consider a decision for the under-deducted primary Class 1 NICs.