When a director's pay counts as received

Q: How does this work in practice?

Illustration only. A company's year ends on 31 March 2026. At a members' meeting on 15 July 2026 the shareholders vote the director a bonus of £30,000 for that year. The cash is paid on 30 September 2026. The bonus was determined after the period ended, so rule 3(c) treats it as paid on 15 July 2026. It is 2026 to 2027 income. The Full Payment Submission should report it on or before 15 July 2026, and the PAYE and National Insurance are payable by 22 August 2026, the 22nd of the following tax month. For Corporation Tax, section 1289(4) of the Corporation Tax Act 2009 treats remuneration as paid when it is received under section 18. As that is within nine months of 31 March 2026, the bonus is deductible in the year to 31 March 2026. See unpaid director bonuses and the nine month rule. Had the director been drawing money since April in expectation of the bonus, overdrawing the loan account, National Insurance could already have been due on those withdrawals under CA44.

For PAYE, a director’s pay is treated as paid at the earliest of four times: when it is actually paid, when the director becomes entitled to it, when it is credited in the company’s accounts or records, and a time set by when the amount is determined. The rules are in section 686 of the Income Tax (Earnings and Pensions) Act 2003 for PAYE and section 18 for the year of charge, and once any of them is triggered PAYE is due even if no money has left the company.

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Which rules decide when a director’s pay is received?

Section 686(1) of ITEPA 2003 treats a payment of PAYE income as made at the earliest of these times:

Rule 1: when the payment is made.
Rule 2: when the person becomes entitled to the payment.
Rule 3, for directors only: the earliest of (a) when sums on account of the income are credited in the company’s accounts or records, whether or not there is any restriction on the right to draw them; (b) if the amount for a period is determined before the period ends, the end of the period; and (c) if the amount is not determined until after the period has ended, the time it is determined.

Section 18 contains the same rules for deciding which tax year earnings fall into, so the PAYE date and the year of charge normally match. HMRC’s CWG2 guide repeats the rules in plain terms in its section on when to work out PAYE. For how this receipts basis compares with other types of income, see when income is taxed.

When does a director become entitled to pay?

HMRC’s Employment Income Manual at EIM42300 describes two routes. The first is through the articles: where directors’ pay must be voted by the members, entitlement arises when the resolution is passed. Informal unanimous approval by the shareholders has the same effect, and approving accounts can be enough if the members know that in doing so they are approving the directors’ pay. The second is a service agreement, written, verbal or implied, under which entitlement arises on the dates the agreement sets. Who has authority to fix pay is covered in who decides directors’ pay.

EIM42290 adds that entitlement means the date the person is entitled to be paid, which can be later than the date a right is earned. A bonus earned at the year end but payable under the contract on a later date is received on that later date, unless a director’s rule produces an earlier one.

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What counts as crediting pay in the company’s records?

EIM42310 says the crediting rule applies even where the director cannot draw the money. The credit need not be in the director’s own account: an entry in a general remuneration account or a note in the minute book is enough, provided it identifies the director and is a credit of earnings.

EIM42320 sets out the limits. These do not trigger the rule:

a figure for likely remuneration in draft accounts, before the shareholders have agreed it
a provision for a bonus that depends on a future condition, such as the director still being in office on a later date
a reserve or provision for pay that has not yet been agreed

What if the amount is fixed before or after the period ends?

Under rule 3(b), if a director’s pay for a period is determined before that period ends, it is treated as paid at the end of the period. EIM42330 gives the example of a bonus voted on 1 June for the year ending 31 July, which is treated as paid on 31 July.

Under rule 3(c), pay determined after the period ends is treated as paid when it is determined, typically when the members vote fees at a meeting after the year end. EIM42340 stresses that this applies even if no entry is made in the records and even if the pay cannot actually be paid. Where a bonus is set by formula, such as a share of profits, EIM42350 says it is determined when the accounts or figures needed to calculate it are available, whether or not anyone does the calculation.

Who counts as a director for these rules?

Section 686(3) defines a director as a member of the board, the single director where there is one, or a member where the members manage the company. It also includes anyone whose directions the directors are accustomed to follow, other than a professional adviser, which brings in shadow directors. Under section 686(2), rule 3 applies if the person is a director at any time in the tax year in which the credit or determination falls, so it can catch earnings credited before an appointment or after a resignation in the same year (EIM42360).

Do drawings during the year count as pay?

For PAYE, not usually. EIM42280 says that where a director draws money during the year, debits it to a loan account and clears it later with fees voted after the year end, the drawings are not payments on account of earnings unless there is evidence otherwise. PAYE follows when the fees are voted or credited.

National Insurance works differently. CWG2 says the National Insurance point of payment is when earnings are placed unreservedly at the director’s disposal, and refers to HMRC’s CA44 guide. CA44 says that if a director’s account becomes overdrawn, or more overdrawn, through withdrawals made in anticipation of fees or bonuses, National Insurance is due on the overdrawn amount at the time of the withdrawal. If the withdrawals anticipate dividends or other non earnings income, no Class 1 contributions are due on them. Crediting voted fees to an account in credit triggers National Insurance when voted, and later drawings from that credit balance do not. The same applies to a director’s personal bills charged to the account, covered in when a company pays a director’s personal bills.

Can a director give the pay back once it is received?

Not with any tax effect. EIM42260 says that once the receipt and payment rules are triggered, repaying or waiving the earnings does not cancel the PAYE or the tax charge. A waiver only works if it is made before the pay is treated as received (EIM42705). CA44 takes the same line for National Insurance: fees waived or refunded after they have been voted still bear contributions.

If the company accounts to HMRC for tax it did not deduct from a director’s pay, section 223 of ITEPA 2003 treats the tax as further earnings of the director, reduced by anything the director makes good. This does not apply where the director has no material interest in the company and is either a full time working director or a director of a non profit making or charitable company.

How does this work in practice?

Illustration only. A company’s year ends on 31 March 2026. At a members’ meeting on 15 July 2026 the shareholders vote the director a bonus of £30,000 for that year. The cash is paid on 30 September 2026.

The bonus was determined after the period ended, so rule 3(c) treats it as paid on 15 July 2026. It is 2026 to 2027 income.
The Full Payment Submission should report it on or before 15 July 2026, and the PAYE and National Insurance are payable by 22 August 2026, the 22nd of the following tax month.
For Corporation Tax, section 1289(4) of the Corporation Tax Act 2009 treats remuneration as paid when it is received under section 18. As that is within nine months of 31 March 2026, the bonus is deductible in the year to 31 March 2026. See unpaid director bonuses and the nine month rule.

Had the director been drawing money since April in expectation of the bonus, overdrawing the loan account, National Insurance could already have been due on those withdrawals under CA44.

What mistakes come up most often?

Running the bonus through payroll on the date the cash is transferred rather than the date it was voted or credited.
Assuming a bonus provision in the year end accounts creates no PAYE, when a minute crediting a specific amount to the director does.
Waiving a bonus after it has been voted and expecting the PAYE to fall away.
Treating drawings made in anticipation of a bonus as loan account movements with no National Insurance.
Paying the PAYE from company funds without deducting it, which creates extra earnings under section 223.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.

When a director’s pay counts as received