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HMRC internal manual

Employment Income Manual

Employment income: directors' fees received by partnerships: exemption from charge to income tax under Part 2 of ITEPA

Section 6(5) ITEPA 2003, section 16B ITTOIA 2005, section 40A CTA 2009

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.

For periods prior to 6 April 2018, HMRC allowed by extra-statutory concession (ESC) that it would accede to a request from the partnership for the inclusion of the fees as a receipt of the profession. This practice was allowed by ESC A37 which set out the conditions that had to be met for this concession to apply.

From 6 April 2018, the Enactment of Extra-Statutory Concessions Order 2018 enacted this concession and its associated conditions by amending section 6(5) ITEPA and introducing section 16B of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) and section 40A of the Corporation Tax Act 2009 (CTA 2009).

Section 6(5) ITEPA now provides that employment income is not charged to tax under Part 2 of that Act if it is within the charge to tax under:

  • Part 2 of ITTOIA by virtue of section 16B of that Act, or
  • Part 3 of CTA 2009 by virtue of section 40A of that Act

Section 16B ITTOIA and section 40A CTA 2009 set out conditions that, if met, mean that income paid to or for the benefit of a director is treated for income tax purposes as a receipt of a trade carried on by the partnership. For details of the conditions that must be met see EIM02501.

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. For details of the process that applies where such a request is received see EIM02503.