IoM Issues Guidance On Directors' Fees

by Amanda Banks, Tax-News.com, London

13 April 2010

The Isle of Man government has released a guidance note on the treatment of non-executive directors’ fees paid by Isle of Man companies to Manx-resident directors with regard to income tax installment payments (ITIP) and National Insurance Contributions (NICs).

The government has said that company directors, for the purposes of ITIP and NICs, are deemed to be employees. In normal circumstances, fees paid to a director should be subject both to ITIP and NICs although some exceptional circumstances are described in the guidance note.

Also, under normal circumstances, where a person is a director of more than one company, ITIP and NICs should be deducted by each company in respect of their fees from that company. The mere holding of multiple directorships by a person does not create self-employment status for taxation and National Insurance purposes, the government’s guidance note states.

Where directors’ fees are paid by a company in respect of a directorship held by a member of a Manx professional partnership they should, in strictness, be subject to ITIP and NICs. However, according to the guidance note, the fees may be treated as income of the partnership, and will not therefore be subject to deduction of ITIP and NICs provided that:

• the directorship is a normal incident of the profession and of the particular practice concerned;
• the directors' fees form only a small part of the partnership income; and
• under the partnership agreement, the fees are pooled for division among the partners.

Similarly, directors’ fees paid by an Isle of Man company to another Manx company can be treated as income of the other company in certain circumstances, and will not therefore be subject to deduction of ITIP and NICs, as outlined in the guidance note.

Also, in general, in the case of directors’ fees paid to non-residents, due to the reciprocal agreement on National Insurance between the Isle of Man and the United Kingdom, a company should also deduct NICs from payments it makes to United Kingdom-resident directors.

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