Expenses and benefits: income tax paid on directors' behalf
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1. Overview
As an employer paying income tax on behalf of company directors, you have certain National Insurance and reporting obligations.
What’s included
If you pay a company director without deducting tax under PAYE, and HM Revenue and Customs (HMRC) then recovers the unpaid tax from you, this counts as a benefit.
2. What's exempt
You might not have to report or pay anything to HM Revenue and Customs (HMRC) if the director doesn’t have a ‘material interest’ in your company, and either of the following applies:
- they’re a full-time working director
- your company is a charity or not-for-profit organisation
In broad terms, a director has a material interest in a company if they (alone or together with associates) own or can control more than 5% of its ordinary share capital. This is explained in more detail in the technical guidance.
3. What to report and pay
If the income tax you pay on a director’s behalf isn’t exempt, you’ll need to:
- report on form P11D
- add the value of the benefit to the director’s earnings when deducting and paying Class 1 National Insurance (but not PAYE tax) through your payroll
4. Work out the value
Use the amount of tax recovered from you by HM Revenue and Customs (HMRC), minus any amount paid back to you (‘made good’) by the director.
5. Technical guidance
The following guides contain more detailed information: