Jennifer Adams considers when HMRC may deem a director's remuneration as being 'excessive', denying deduction against corporation tax profits.
On the face of it, directors are free to vote on their remuneration as the board sees fit. However, directors should be aware that HMRC may challenge excessive salaries and benefits-in-kind on the basis that they are not 'wholly and exclusively' paid for the purposes of the trade.
Open to challenge?
HMRC is less likely to challenge the remuneration of a sole director ‘…where the controlling director is also the person whose work generates the company’s income then the level of the remuneration package is a commercial decision and it is unlikely that there will be a non-trade purpose for the level of the remuneration package’ (see HMRC’s Business Income Manual at BIM47106). <>
