EIM15515 - Value Added Tax: inter-relation with earnings and expenses: VAT and remuneration paid for services to certain professional persons: example
An accountant is a director of XYZ Ltd and is entitled each year to fees of 拢1,000 as financial adviser. Assuming that the fees can properly be regarded as earnings from the directorship, the amount taxable as employment income will depend on the terms of the contract between the director and the company:
If the contract provides for a payment of 拢1,000 inclusive of VAT, the director will receive 拢1,000 made up of fees 拢800 and VAT 拢200. The amount taxable as employment income is 拢800.
If the contract provides for a payment of 拢1,000 plus VAT, the director will receive 拢1,200 made up of fees 拢1,000 and VAT 拢200. The amount taxable as employment income is 拢1,000.
See also EIM02500 regarding Extra-Statutory Concession A37, under which certain director鈥檚 fees received by members of a professional partnership can be taxed as Trading Income instead of as employment income.