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HMRC internal manual

National Insurance Manual

NIM12009 - Class 1: Calculating Class1 NICs for Directors: Fees received by other companies: No formal right to appoint a Director: Control test

Regulation 27(1) & Regulation 27(4) SSCR 2001

For the purpose of regulation 27(4) SSCR 2001 the first company should not be one overwhich the director, or

  • any person connected with the director, or
  • the director and any persons connected with the director has control.

“Control” has the meaning given to it by Section 840 ICTA 1988, but anyperson connected with the director is included in the test. A person connected with thedirector is defined in the regulation as a:

  • spouse
  • parent
  • child
  • son-in-law, or
  • daughter-in-law

of the director.

Control occurs where a person, or persons, can effectively decide the direction andpolicies of a company. Policies of the company, remuneration of directors, payment ofdividends, appointments of auditors and directors are normally decided at the annualgeneral meeting after the end of the company’s accounts year and shareholders vote onthose issues. Therefore a basic form of control is the ownership of over 50% of the sharesin a company.

For example if the director of the second company mentioned above owns 40% of the sharesof the first company, there is no control so the fees would be excluded from Class 1 ifthe other conditions were satisfied.

However if the spouse of the director owns a further 11%, the director and connectedperson (spouse) now own 51% of the shares and the director then is deemed to have controlof the first company. The fees do not then fall within the regulation and cannot beexcluded from Class 1 NICs liability.

Control of a company can be by various means in addition to holding a majority of thevoting share capital. Detailed information is in CT Manual. If you are unsure whether thecontrol test is satisfied you should consult the Inspector of Taxes dealing with thecompany.