By Tolley

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Directors
  • Income tax
  • National Insurance

Most of the rules concerning tax on employment income and National Insurance apply to company directors in exactly the same way as they do to general employees. Unless otherwise stated, when the guidance notes in this module talk about 'employees' this includes both directors and employees.

The rules on the national minimum wage do not apply to company directors unless they provide work or services to the company under a contract of employment (see the National minimum wage – overview guidance note).

This guidance note is concerned with the instances where special tax or NIC rules apply to directors.

Income tax
Who counts as a director?

Although in many cases it is obvious that an individual is a director, eg because his job title says that he is, there is a definition in the legislation on employment benefits that includes a range of people who may not normally be described as directors. It specifically includes anyone who manages the affairs of a company alone, is a member of a board of directors or similar body which does so, or is a member of a company whose affairs are managed by its members.

ITEPA 2003, s 67

If the directors (as described above) usually act under the direction or instruction of another individual in managing the affairs of the company, that other individual also comes within the definition of director for the purposes of the benefits code. Such an individual is sometimes known as a 'shadow director' but for the purposes of the benefits code he is treated in exactly the same way as a formal director. This does not include a professional person such as a lawyer or accountant if the directors simply act on the advice that he gives in his professional capacity.

It is important to remember that

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