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HMRC internal manual

Employment Income Manual

Employment income: directors' fees received by partnerships and companies: text of Extra-Statutory Concession A37


By concession, directors’ fees can be included as Trading Income of professional partnerships instead of being charged to tax as employment income. There is a similar concession relating to fees received by a company with a right to appoint a director to the board of another company.

The full text of the concession is:

“1. Where fees are received in respect of directorships held by members of a professional partnership they are in strictness assessable on the individual partners as employment income. It is however the practice of HM Revenue & Customs (HMRC) to accede to a request from the partnership for the inclusion of the fees as receipt of the profession provided that -

(a) the directorship is a normal incident of the profession and of the particular practice concerned;  
(b) the fees are only a small part of the profits; and  
(c) under the partnership agreement the fees are pooled for division among the partners.

Partnerships seeking such treatment are expected to provide HMRC with a written undertaking that directors’ fees received in full will be included in the gross income or receipts of the basis period, whether or not the directorship is still held in the year of assessment and whether or not the partner concerned is still a partner.

  1. It is also the practice of HMRC that where a company has the right to appoint a director to the board of another company, by virtue of its shareholdings in, or a formal agreement with, the second company then, provided the director is required to hand over to the first company any fees or other earnings received in respect of his directorship with the second company and does so, and the first company is chargeable to corporation tax and agrees to accept liability on the fees, those fees are treated as income of the company and not of the director, and tax is not deducted from the fees under PAYE. Where the first company is chargeable not to corporation tax but to income tax (for example, if it is a non-resident company not trading through a branch or agency in the United Kingdom) and agrees to accept liability, tax is deducted at the basic rate of income tax from the fees.

  2. With effect from 6 April 1980, the practice described in the previous paragraph will be extended to the case where the first company has no formal right to appoint the director to the board but the director is nevertheless required to (and does) hand over his fees to that company, provided it is -

(a) a company resident in the United Kingdom liable to United Kingdom corporation tax or, if non-resident, is trading through a branch or agency in the United Kingdom so that its income is chargeable to corporation tax under section S11 ICTA 1988 and the fees are included in that income; and  
(b) not a company over which the director has control. (For this purpose 'control' has the meaning given to it by section S840 ICTA 1988 , but in determining whether the company is controlled by the director the rights and powers of his spouse or civil partner, his children and their spouses or civil partners and his parents will also be taken into account.)"