»Ê¹ÚÌåÓýapp

ITA07/S168

An individual is connected with a company as a director at a time in period A (see VCM10540) only if he receives a payment from the company other than a ‘permitted payment� (see below), or becomes entitled to receive such a payment in respect of any part of that period. Similarly, where an associate (see VCM11100) of the individual is a director of the company, that individual is connected with the company only if that associate receives, or becomes entitled to receive, a payment other than a permitted payment.

This rule is extended to cover payments made to the individual indirectly or made to his order or for his benefit.

»Ê¹ÚÌåÓýapp rule is also extended to cover payments made by any ‘related personâ€� - that is:

• any company of which the individual or his associate is a director and which is either a subsidiary or a partner of the first company or of any subsidiary of it,

and

• any person connected (under ITA07/S993) with any such company or with the company which the director has invested in.

Example

Andrew, Brian, Catherine and David each subscribe for 25% of the share capital of a new company called Organic Parsnips Ltd, of which they all become unpaid directors. »Ê¹ÚÌåÓýappy are also the owners of a company called Just Carrots Ltd, a company of which they have been paid directors for many years.

Any three of those individuals can control each company, so the two companies are connected by virtue of ITA07/S993. Because the four individuals each receive payments from a company connected with Organic Parsnips Ltd, they do not qualify for relief on their subscriptions.

Permitted payments to directors

In determining whether a director is a ‘paid directorâ€�, certain payments are ignored. »Ê¹ÚÌåÓýappy are as follows:

• any payment or reimbursement of expenses which are wholly, exclusively and necessarily incurred by the director in the performance of his duties,
• any interest which represents no more than a reasonable commercial return on the amount lent,
• any dividend or other distribution which does not exceed a normal return on the amount invested,
• any payment for the supply of goods which does not exceed their market value,
• any payment of rent which does not exceed a reasonable commercial rent,
• any reasonable and necessary remuneration which:
• is paid for services rendered in the course of a trade or profession, other than secretarial or managerial services or services of a kind provided by the person to whom they are rendered, and
• is taken into account in calculating for tax purposes the profits of that trade or profession.