Part 2Trading income
Chapter 2Income taxed as trade profits
Trades and trade profits
16BF1Payments to company directors
1
This section applies where—
a
a company (“the paying company”) makes a payment to, or for the benefit of, a director of the paying company in respect of the director’s employment as a director of the paying company,
b
the payment would otherwise be employment income of the director chargeable to tax under Part 2 of ITEPA 2003,
c
the director was or is a member of a firm, or was appointed by a company (“the appointing company”) other than the paying company, and
d
condition A or B is met.
2
The payment is to be treated for income tax purposes as a receipt of—
a
a trade carried on by the firm, or
b
a trade carried on by the appointing company.
3
Condition A applies where the director is a member of a firm, and is that—
a
the director carries on a profession,
b
being a director of a company is a normal incident of that profession and of membership of the firm,
c
the director is required by the terms of the partnership agreement to account to the firm for the payment, and
d
the amount of the payment is insubstantial, compared with the total amount brought into account as receipts when calculating the firm’s profits.
4
Condition B applies where the director is appointed by a company, and is that—
a
the profits of the appointing company are within the charge to income tax,
b
by virtue of an agreement with the appointing company, the director is required to account for the payment to that company, and
c
either subsection (5) or subsection (6) applies to the appointing company.
5
This subsection applies if the appointing company had the right to appoint the director by virtue of its shareholding in, or an agreement with, the paying company.
6
This subsection applies if the appointing company is not one over which—
a
the director has control, or
b
any person connected with the director has control, or
c
the director and any persons connected with him together have control.
7
For the purposes of subsection (6), the following persons are connected with the director: the spouse, civil partner, parent, child, son-in-law or daughter-in-law of the director.