Self-Assessment & PAYE for directors

Typically, a director will receive a salary for their work and possibly also benefits in kind.

Benefits in kind would include such things as a company car. The tax due on salary, and normally that due on benefits, is collected through the payroll. Income tax and National Insurance for the director, and the company’s contributions as employer are collected by the company and paid to HM Revenue and Customs(HMRC).

Directors complete an annual self assessment tax return. This will include their income from all sources. Any additional tax due will be collected through self assessment. This might include tax on benefits, if they have not been taxed under PAYE, or higher rate tax on dividends, as discussed below.

Where a director is also a shareholder, he or she may receive part of their remuneration as dividends. Dividends are treated as paid by the company after deduction of tax at 10%. In the director’s hands the 10% ‘tax credit’ covers the basic rate income tax liability. If the director is a higher rate tax payer, additional tax will be due, and this is collected through self assessment.

There is guidance on the HMRC website on self assessment for employees: http://www.hmrc.gov.uk/saemployees/

Directors have an annual payment period for National Insurance. This means that your National Insurance is worked out slightly differently from any other employee. The annual payment period means that, for example, you are likely to pay the same amount of National Insurance even if your earnings are uneven over the year, perhaps due to the timing of bonus payments.