Corporation Tax Act 2009 section 40A

Payments to company directors

Section 40A deals with situations where a director's fees paid by a company can be treated as a trading receipt of the director's firm or the company that appointed the director, rather than as the director's personal employment income.

• Where a company pays a director who is a member of a firm or was appointed by another company, the payment can be redirected for tax purposes from being the director's employment income to being a trading receipt of the firm or appointing company.
• Under Condition A (firm route), the directorship must be a normal part of the director's profession, the director must be required to hand over the fees to the firm, and the fees must be insubstantial compared to the firm's total receipts.
• Under Condition B (appointing company route), the appointing company must be within the charge to corporation tax, the director must be required to account for the fees to that company, and the appointing company must either have had the right to appoint the director (through shareholding or agreement) or must not be controlled by the director or connected persons.
• Connected persons for the control test include the director's spouse, civil partner, parent, child, son-in-law or daughter-in-law.