Section 40A — Corporation Tax Act 2009: Payments to company directors

Payments to company directors 40A 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 corporation 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 corporation 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.