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HMRC internal manual

Employment Income Manual

From
HM Revenue & Customs
Updated
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Value Added Tax: inter-relation with earnings and expenses: VAT and remuneration paid for services to certain professional persons: example

An accountant is a director of XYZ Ltd and is entitled each year to fees of £1,000 as financial adviser. Assuming that the fees can properly be regarded as earnings from the directorship, the amount taxable as employment income will depend on the terms of the contract between the director and the company:

If the contract provides for a payment of £1,000 inclusive of VAT, the director will receive £1,000 made up of fees £800 and VAT £200. The amount taxable as employment income is £800.

If the contract provides for a payment of £1,000 plus VAT, the director will receive £1,200 made up of fees £1,000 and VAT £200. The amount taxable as employment income is £1,000.

See also EIM02500 regarding Extra-Statutory Concession A37, under which certain director’s fees received by members of a professional partnership can be taxed as Trading Income instead of as employment income.