EIM30501 | Deductions: directors' and officers' liabilities: general

Sections 346 to 350 ITEPA 2003

Company directors and officers (and, to a lesser extent, employees) may be subject to legal action undertaken by their employers or by third parties in respect of alleged or actual wrongful acts or omissions in their capacities as directors or employees. Insurance (usually called indemnity insurance) to cover damages and legal expenses arising from such claims is available but it cannot extend to fines or penalties for criminal acts.

Where an employer meets the liability for a director or employee arising out of such an action the employer’s payment will normally be chargeable on the director or employee as earnings arising from the employment (see EIM00580 onwards). Similarly, where an employer arranges and pays for insurance to cover potential liabilities arising to directors or employees from alleged or actual wrongful acts or omissions in their capacities as such, charges under Chapter 10 of the benefits code (see EIM20007) arise in respect of the benefit of the insurance cover (see EIM21001 onwards). The measure of the charge is the proper proportion’ (see EIM21200) of the premium: that is, that proportion of the overall premium that is attributable to the cover provided for that director or employee.

Where a former employer meets a liability after the directorship or employment has ceased the amount may be also be chargeable as employment income.

In some circumstances relief is due against these charges, see EIM30505.