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Q&A: Unpaid - but what about tax?

I want to hire a friend as a director to help me in my food manufacturing business but he has said he would like to take on the role for no salary to help me out. He is currently working for another company and will continue in that role as well as helping me. How can we structure it so that his obligations (Tax, NI, SSP) and benefits (pensions) as an employee at his current job will not be affected?

The starting point here is that there is nothing preventing you from hiring your friend as an unpaid director, and such positions are relatively commonplace. Directorship can be a purely voluntary position, with no entitlement to pay, pension or other benefits. Moreover, one can hold a directorship as well as having regular paid employment elsewhere. For example, many of us who own flats may be unpaid directors of our block’s management company, whilst still holding down our “day jobs”.

My advice would be that your friend should check his existing contract of employment, or have someone check it for him. In my experience, contracts of employment typically contain a provision where the employee promises to work “wholly and exclusively” for their employer. If this is the case, then your friend will need to approach his boss/HR director to seek permission to take on a role with your company. Amongst other things, they will be keen to ensure that the role won’t encroach too much on his work commitments, and also that there is no risk of a conflict of interest.

Finally, your friend should be aware that company directorship brings with it certain legal responsibilities, even if it is unpaid. A helpful summary can be found at: https://www.gov.uk/running-a-limited-company/directors-responsibilities

This Q&A was written for and first featured in the Financial Times.

This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.

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