Non-Executive Directors: Taxation of remuneration

30 January 2019

Many companies engage the services of a non-executive director (NED) as an independent adviser to the executive directors. There will frequently be no contract of employment, and fees will often be paid on invoice.

A summary of the rules

The UK tax treatment of such appointments is still an area that companies frequently get wrong and hence this recap to avoid (or remedy) a costly PAYE compliance failure.

The basic premise is that a NED is an ‘office holder’ with gainful employment in the UK and as such should be treated in the same way as any other employee. Despite the fact that a NED may enjoy a considerable degree of autonomy, payments made to a NED for their role as an office holder must be made through the payroll, accounting for both PAYE and class 1 NIC, including employer’s NIC. This applies to all fees/remuneration/benefits earned regarded as earned as the office holder.

Tax treatment of expenses

Commonly, companies also pick up NED’s travel expenses to attend Board meetings. Expenses may also extend to accommodation and food. Such expenses are also generally taxable in the UK as HMRC view the location of the Board meeting as a ‘permanent workplace’ and journeys between a home and a permanent workplace are counted as private. Circumstances surrounding each case, however, should be closely reviewed to see if any available exemptions apply.


  • If the company arranges for the transport/accommodation, then these are reportable on form P11D and chargeable to Class 1A NIC.
  • Where the NED is reimbursed for these expenses the payment is treated as covering a pecuniary liability and is thus liable to PAYE and Class 1 NIC through the payroll.
  • If the company are happy to bear the whole cost of benefit i.e. including the taxes, then they can settle under PAYE Settlement Agreement (PSA).

When the NED has more than one role

Sometimes a NED may have two or more workstreams with a company i.e. their duties as a director and perhaps consultancy services. The terms of that consultancy contract and the facts of the case will determine whether it is one of employment or self-employment. Payments under a self-employment contract can be made gross. It is advisable that separate contracts are in place to help bring clarity to the situation and care should be applied when drafting the contracts.

NEDs may provide their services via a personal service company (PSC). HMRC’s argument is that it is the individual who is hired to fulfill the role of the office holder and so fees can still be subject to PAYE and NIC under IR35 legislation.

Establishing the correct tax and NIC treatment for NED’s fees and expenses is complex and the rules are often misunderstood. We can assess the background arrangements and review the contractual arrangements to help determine the correct treatment.

If you have any queries or would like to discuss this issue further, please contact me or your local UHY adviser. Alternatively, fill out our contact form here.