With all due respect to Sherlock, I am not sure that "IR35" is of any relevance in the circumstances outlined by the querist. The fees of non-executive directors do not fall within IR35 as the Revenue acknowledges: see http://www.inlandrevenue.gov.uk/ir35/faq_qanda/director_q2.htm
Furthermore, the "IR35" provisions could only apply if the relationship between the consultant's company and the client company would have the characteristics of employment but for the interposition of the consultants' company. If IR35 could apply to the services as supplied by the consultant through a company, it is surely the case that a consultant who offered those same services on his own account rather than through a company would be in an employment relationship with the consequence that PAYE would apply to the consultancy earnings as well.
It is rare for an individual, say X, to provide services as a non-executive director to the client company, Y Ltd, through the medium of a company of his, X Ltd, since that would involve X Ltd being the director, not X, in which case PAYE would not be in point. Neither do I think that Y Ltd would usually have this kind of arrangement in mind. Corporate company secretaries are, of course, much more common, but I think in the normal course of events, the services of a non-executive director will be supplied personally by him or her and the fact that those fees may be channelled into a company does not affect the PAYE position.
The arrangement to which Sherlock refers is Extra-Statutory Concession A37. This relates to fees which members of any kind of professional partnership (not just lawyers and accountants) earn as office-holders; note that sole practitioners are not within the concession. While such fees are strictly within Schedule E and therefore PAYE, the concession treats them as falling within Schedule D Case II if certain conditions are met. One of the conditions is that the fees concerned are only a small part of the profits of the partnership so a practice consisting largely of a portfolio of non-executive directorships would not qualify for the concession.
While I agree that, in principle, it is perfectly possible to be a non-executive director of a company and also to provide consultancy services to that company in a manner which is consistent with self-employment rather than employment, it is frequently the case that what amounts to a service contract is represented (or perhaps I should say, misrepresented) as a contract for services. It is not impossible that the Revenue's view (if it may be dignified with such a description at this stage) may have some merit in the circumstances of the case. It goes without saying that the written terms of any consultancy agreement will not save the fees from being treated as earnings for tax purposes if the conduct of the parties is consistent with an employment relationship.
The answer to Jeremy Rees' supplementary question depends on whether by "his company" he means the company of which the director is a non-executive director (and consultant) or the company through which he provides the services.
If it is the former, one would have to consider whether the company has sufficient "tax presence" for the PAYE regulations to apply (see Oceanic Contractors v clark). That said, and with apologies for what may appear to be a tautology, one would normally expect a non-executive director to attend board meetings in the country where the company was resident on the grounds that companies are normally resident for tax purposes where the board meetings are held!
If it is the latter, I see no reason why PAYE should not apply if, as one would expect, the duties are performed in the UK for a UK company.
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