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鈥檚 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鈥檛 have a 鈥榤aterial interest鈥� in your company, and either of the following applies:

  • they鈥檙e 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鈥檚 behalf isn鈥檛 exempt, you鈥檒l need to:

  • report on form P11D
  • add the value of the benefit to the director鈥檚 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 (鈥榤ade good鈥�) by the director.

5. Technical guidance

The following guides contain more detailed information: