Can HMRC claim that dividends paid to director/shareholders are actually remuneration?
Dividends in these situations are paid to a director because he is a shareholder and as a consequence it is not possible to claim that they are paid in respect of services as an office holder or employee. A very useful tax case in this area is Eyres v Finnieston Engineering Co Ltd [1916] 7TC74, (see HMRCs Business Income Manual at para.37705). In that case the company tried to claim a deduction against taxable profits for dividends, claiming that they were part of the remuneration package. No deduction was allowed by the courts, even though the companys Memorandum and Articles said that dividends were part of the remuneration package. Should a director pay himself a market value salary for tax purposes? There is no such thing according to the Taxes Acts, and directors are free to vote themselves remuneration as the board of the company sees fit. Directors should be aware though that excessive salaries and benefits in kind may be challenged on the basis that they are not wholly and excl
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