Dealing with 'invisible' directors

Like most organisations, you will have board directors on your payroll. These may include executive and non-executive directors. However, have you got all the required directors on your payroll? What about those directors who live outside the UK and only travel to the UK to attend board meetings? Often these individuals can be ‘invisible’ to an organisation and can get missed when it comes to PAYE compliance.

Non-compliance in this area is not entirely surprising. The rules can be a little complex when it comes to PAYE and NIC for non-resident directors. Also, it can be confusing where you have non-resident directors who are also working for another group company overseas and who are paid overseas.

Why is a non-resident director’s pay subject to UK PAYE?

A non-resident director of a UK company is an ‘office holder’ for UK tax purposes. Any income received in respect of this UK role should be treated as earnings in the UK and subject to UK wage tax withholding (PAYE). Only where the director is paid no income at all for their role, for example for a voluntary role, will there be no PAYE requirement.

In many cases, UK employers are caught out because they assume that the non-resident director does not receive pay for their UK directorship when, in fact, the role is remunerated by an overseas company in the same group. The UK role forms parts of an all-encompassing remuneration package overseas.

The fact that a director may be paid outside the UK, whether specifically or as part of wider remuneration package covering other parts of an individual’s role outside the UK, does not alter a UK employers PAYE and NIC obligations. In these certain circumstances, HMRC would normally seek to allocate a proportion of the director’s total pay to the UK directorship role, for example, based on the time spent working in the UK.

UK National Insurance contribution (NIC) requirements

This is a particularly tricky area. The reason for this is that the NIC position is dependent on a range of factors, including whether the UK has a reciprocal social security agreement with the country in which the director is resident. Or Whether the director resides in the EU and whether the director holds other directorships.

For example, the UK is bound, at least currently pre Brexit by EU Regulations on social security that may trigger a non-UK social security obligation for the UK Company in another EU state. This obligation can apply, even where the UK Company has no corporate presence in the other EU state. That is, the country in which the director is living in the EU can, depending on the circumstances, potentially demand non-UK social security from the UK Company.

There are some HMRC concessions for non-resident directors who come to work for a UK company from outside the EEA and from countries with whom the UK has no reciprocal social security agreement. Where these concessions apply, it is possible that the requirement to operate NIC may be relaxed.

Next steps

‘Invisible’ directors can create a real headache for employers in the UK. The points above represent a broad summary of only a few of the main considerations. Other considerations include the reporting of UK benefits, for example, accommodation for the director when they are in the UK, whether tax relief can be claimed and personal tax filing obligations for the director.

If this is relevant at your organisation relevant, take the following key steps:

  • review your board to see if you have any non-resident directors
  • check whether the non-resident directors are remunerated (either via a payment specifically for that role or as part of a wider compensation package)
  • review the director’s circumstances to determine the PAYE position, the NIC position and the benefits and expenses reporting position (you may need some external advice for this piece)
  • take the required action to ensure that you are compliant.

As always, it is better to identify and rectify the issue now, rather than it coming to light unexpectedly.

By Lee Hamilton, Partner, Blick Rothenberg,