NIM12012 | Class 1: Calculating Class 1 NICs for Directors - Miscellaneous - Dividends

Section 3 & Section 6 Social Security Contributions & Benefits Act 1992

Directors receive dividends as shareholders in the company and not in their capacity as directors. Dividends are therefore not earnings for the purposes of National Insurance Contributions. If a company pays an unlawful dividend to its directors, or any other shareholder, the money is returnable to the company (Section 277 Companies Act 1985) and is not re-classified as earnings.

If the company is possibly an intermediary within the ‘IR35’ legislation, see ESM3500 onwards.