Tax Tips for Directors

The National Insurance system works differently for directors. NI for directors is calculated on a year to date basis, therefore a director can earn £5,715 (2010/11) before either the director or the company are due to pay any NI. Directors are not usually subject to the minimum wage unless they have a contract of employment with the company. If a director leaves an employment where NI has been calculated in the usual fashion, a NI rebate may well be due. Directors have to pay tax on Benefits in Kind no matter how high or low their earnings (the £8,500 lower limit does not apply to directors). The Directors Current Account is used to track how much is owed by the company to the directors (or vice versa). Often when a company is formed the directors introduce cash or equipment to the business, the value of which should be put into the directors current account for repayment. If the Company owes money to the directors it can be paid back without any tax being due (as it is simply a repayment of a loan) and if appropriate should be repaid in advance of salary or dividends. If the Directors owe money to the company, repayment should be made within 9 months of the year end, otherwise tax is due on the benefit of the loan. Shareholder/Directors should refer to the Limited Company Pages and in particular the Salary or Dividends Calculator which works out the tax savings available by taking dividends in place of salary. Directors will usually benefit from also reading our Employee Tax Tips page.