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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Class 1: Calculating Class 1 NICs for Directors: Miscellaneous: Consultancy fees

Section 3 SSCBA 1992 and Section 6 SSCBA 1992

A director’s entitlement to remuneration is normally either through a service contract or, if there is no such contract, by resolution at the company Annual General Meeting, if it has adopted Table A to the Companies Act Regulations. You should be aware to what remuneration a director is entitled before considering whether consultancy fees might be director’s earnings.

It is perfectly possible for a director of a company to provide services quite legitimately to that company in a separate capacity. For example, the individual could be carrying on an established business as a solicitor, estate agent, accountant or consultant whereby services are supplied to the company on terms similar to those given to other customers. In these cases the payment for the services would not be income from an office or employment assessable as general earnings (previously under Schedule E) or subject to Class 1 NICs.

However there may be instances where the director and company want to disguise director’s remuneration so it is not liable for Class 1 NICs. If the director, who is not a professional person, receives little in the way of director’s remuneration and the company pays fees to the director as a self-employed consultant, this will warrant appropriate investigation of the facts.

Where a director also uses a service company, see the guidance at ESM3000 onwards.