NIM12012 - Class 1: Calculating Class 1 NICs for Directors – Miscellaneous - Dividends

Section 3 SSCBA 1992 & Section 6 SSCBA 1992

Directors receive dividends as shareholders in the company and not in their capacity as directors. Dividends are therefore not earnings for the purposes of National Insurance Contributions. If a company pays an unlawful dividend to its directors, or any other shareholder, the money is returnable to the company (Section 277 Companies Act 1985) and is not re-classified as earnings.

If the company is possibly an intermediary within the ‘IR35’ legislation, see ESM3000 onwards.