The Directors Taxline has recently been asked about a change in policy by HM Revenue and Customs (HMRC) concerning the tax treatment of Non-Executive Directors. The two main situations under consideration are the tax treatment of fees when paid to a Non-Executive Director's self-employed business, and alternatively if paid to his own personal service company.
Taking the former issue, before 2003, there was doubt whether PAYE applied in these cases as not all office holders were employees albeit that the same could not be said for Class 1 (employees) National Insurance, which is levied on all payments to office holders, including Non-Executive Directors.
The tax legislation was changed with effect from 6th April 2003 as a result of Section 5 of ITEPA 2003 which made it clear that an office is treated in the same way as an employment. Therefore, PAYE must be applied to fees in respect of this office. HM Revenue & Customs views on this matter can be found in their Employment Status Manual at pages ESM25011 and ESM2502.
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