Executive directors of limited companies are classed as office holders for the purposes of tax and National Insurance contributions (NICs).
An office holder's earnings are automatically chargeable to tax as employment income and there is also a liability for Class 1 NICs.
Calculating NICs for directors
The rules for calculating NICs for directors are different to those for other employees. Class 1 employee and employer NICs must still be paid if the director earns over the primary threshold, but unlike employees, directors are taxed on a cumulative basis. This means that you have to recalculate their NICs every time they are paid - based on their total earnings to date.
For information on NICs for directors, see National Insurance rates and classes.
The employment status of directors (executive or non-executive) may be employed or self-employed, and will depend on the terms and conditions of their appointment.
However, regardless of their executive or non-executive status, company directors have a number of additional responsibilities under company law and in relation to the completion of self-assessment tax returns. Read more on directors' responsibilities and running a company or partnership.
Self-employed people who convert their business to a limited company usually become directors of the company as well as employees of the company.
In employment law, a director of a limited company has the status of an office holder. While employees' rights and duties are defined by an employment contract, the rights and duties of an office holder are defined by the Companies Act 2006 and the Company Constitution (as per Companies Act 2006). Office holders are not usually covered by employment legislation unless specifically mentioned. See running a limited company.
However, it is not unusual for a company director to also have a contract of employment with the company and so be both an office holder and employee, and therefore benefit from the employment rights of an employee.
You should seek advice if you are unsure of your employment status or that of someone who works for you. You can contact the Labour Relations Agency (LRA) on Tel 03300 555 300 or the HM Revenue & Customs (HMRC) Employment Status Helpline on Tel 0300 123 2326.