A director can sometimes invoice their own company, but only where the payment is for services genuinely provided in a capacity separate from the directorship. Fees and other earnings arising from the office of director are employment income and should normally be dealt with through PAYE.
The starting point: directors are office holders
A company director is an office holder. HMRC’s Employment Status Manual says that earnings arising from a directorship are chargeable as employment income and are subject to Class 1 National Insurance. Calling the payment a management fee, consultancy fee or something similar does not by itself change the tax treatment.
The key question is what capacity you were acting in when you did the work and received the payment.
When separate consultancy work can be legitimate
HMRC’s National Insurance guidance expressly accepts that a director may provide services to their company in a separate capacity. Its examples include an individual who already carries on an established business as a solicitor, estate agent, accountant or consultant and supplies services to the company on terms similar to those offered to other customers.
Factors that can support a genuinely separate engagement include:
- the services are clearly distinct from the duties performed as a director
- there is a genuine separate agreement for the work
- the individual carries on that activity on a commercial basis, particularly where similar services are supplied to other customers
- the pricing, terms and evidence of the work are consistent with a separate commercial engagement
These factors are evidence, not a checklist that automatically makes the arrangement self-employed. The facts and the nature of the work still matter.
What if the extra work overlaps with running the company?
This is where many arrangements become difficult. Director duties can extend well beyond attending board meetings. Running the business, making strategic decisions, managing operations and carrying out work that forms part of the director role may all point towards employment income rather than a separate trade.
An invoice does not create a separate capacity if the underlying work is really part of the directorship.
Tax and payroll consequences
If the payment is remuneration for director duties, the company will normally need to operate PAYE and account for Class 1 National Insurance. If the individual is genuinely providing separate services outside the directorship, the treatment depends on the facts of that separate engagement and its employment status.
Do not assume that an historic invoice should simply be reclassified without reviewing the arrangement first. The correct way to put an old position right can depend on the years involved, the payroll reporting already made, the individual’s tax returns and whether HMRC has already contacted the company.
What to do if you have been invoicing your company
Start by identifying exactly what services were supplied and separating work performed as a director from any genuinely distinct activity. Review the contracts, invoices, time records and evidence of similar services supplied to other customers. Then quantify the payments and take advice on the correct treatment before making payroll or tax corrections.
The important point is not whether an invoice exists. It is whether the payment arose from the directorship or from a genuinely separate commercial relationship.
If you are unsure how payments between you and your company should be treated, get in touch and we can review the facts before you make changes.
