Director Remuneration and Corporation Tax — Allowable Expenses

Director remuneration — whether paid as a salary through PAYE or as invoiced fees where the director acts as a contractor — is normally an allowable business expense for corporation tax (CT) purposes, provided the payments are for genuine services and are commercially reasonable.

What counts as director remuneration for CT

For CT purposes, allowable director remuneration includes:

• Monthly salary or director's fees paid under PAYE
• Bonuses and one-off director payments
• Invoiced fees where directors were paid as self-employed contractors or consultants during a period before PAYE was introduced
• Management charges paid to a director's personal service company

Are director invoices deductible?

Yes. Under CTA 2009 s54, a deduction is allowed for expenses incurred wholly and exclusively for the purposes of the trade. Payments to directors for genuine business services clearly qualify — the payment method (PAYE or invoice) does not affect deductibility.

If directors invoiced the company during a period before PAYE was introduced, those amounts remain allowable CT expenses, provided:

1. The invoices were for genuine work performed
2. The amounts were commercially reasonable for the services provided
3. The payments were actually made (not merely accrued without settlement)

The fact that the directors declared the income on their Self Assessment returns confirms the income was received. From the company's perspective, the corresponding expense is deductible when computing taxable profits.

How to enter director remuneration in TinyTax

Enter the invoiced or salary amounts in the Profit and Loss section of your CT600:

• Wages and salaries — for amounts paid to directors under PAYE
• Management charges or Professional fees — for amounts paid to directors invoicing as contractors
• Other expenses — if your bookkeeping uses a different category

TinyTax uses the net profit from your P&L to calculate corporation tax. Director remuneration (including invoiced amounts) reduces your taxable profit in the usual way.

What about switching from invoicing to PAYE?

Moving director remuneration to PAYE does not affect the deductibility of historical invoiced amounts. Each period is assessed on its own facts.

If HMRC were to later determine that the directors were de facto employees during the invoicing period (an employment status / off-payroll working question), any reclassification would affect how the income is treated in the directors' hands — but would not remove the company's CT deduction for the amounts paid.

Common questions

Do I need to adjust anything on the CT600?

No separate adjustment is needed. Simply ensure the invoiced amounts are recorded as expenses in your P&L and flow through into the computation. TinyTax includes them automatically in the deductible expenses total.

What if the directors were paid as contractors by their own company?

HMRC can scrutinise payments between connected parties (for example, a director invoicing via their own personal service company) if they appear uncommercial. As long as the amounts reflect genuine services at market rates, they should be accepted as CT deductions.