A board seat across the Atlantic: how non-executive director fees are taxed

Figures relate to tax year 2025 (US) · 2025-26 (UK)

An American living in London joins the board of a Delaware company. A British executive in New York takes a non-executive seat on a FTSE board. In both cases the director fees look simple, and in both cases the tax follows rules most board members have never read.

The treaty has a specific article for directors, and it does not work like the one for employees. So this guide covers where the fees are taxed, how payroll treats them, and why an American director can owe self-employment tax on a quarterly board fee.

Key takeaways

• The treaty lets the company's home country tax director fees, wherever the director lives.
• The director's home country taxes the same fees too, then gives credit for the first tax.
• British companies usually run director fees through payroll with PAYE and National Insurance.
• America often treats an outside director's fees as self-employment income.
• Days spent in each country matter far less than they do for ordinary employees.
• Expenses paid by the board can create taxable benefits on both sides.

What is a director fee?

It is a payment to a board member for serving as a director, as opposed to salary for an executive job. A non-executive director typically receives an annual fee, sometimes with extra for chairing a committee. The treaty treats these payments separately from ordinary employment income.

The distinction matters most for executives who sit on their own company's board. Their salary follows the employment rules, while any separate fee for the board role follows the directors' article.

Where are director fees taxed?

In the country where the company is resident, first of all. The US-UK treaty allows that country to tax fees paid to a director resident in the other one. The director's home country can then tax the same fees, and it gives credit for the tax already paid.

That differs sharply from the employee rule. An employee who works a few days abroad can often avoid tax there under a short-stay exemption. A director cannot, because the directors' article ignores where the meetings happen.

According to the treaty guidance published by the IRS, the directors' article applies to fees and similar payments received in the capacity of a board member. Executive salary for other work sits under the employment article instead.

In practice the credit usually flows one way. Britain taxes a British board fee first, at British rates, and the American return then credits most or all of that tax. The remaining American charge is often small, apart from self-employment tax.

What if you are an executive and a director?

Then split the pay. Salary for the executive job follows the employment article, with its own rules on workdays and short stays. A separate fee for the board seat follows the directors' article. Most executives on their own company's board receive no separate fee, which keeps things simpler.

Where a group pays one global package, ask how it is allocated. A letter setting out salary and director fees separately saves an argument later.

How British companies pay director fees

Most run them through payroll. HMRC treats a director as an office holder, so fees attract PAYE and usually Class 1 National Insurance, calculated on an annual earnings period for directors. The fee then appears on a payslip and a P60 like any salary.

Some boards pay through the director's own company instead. That route needs care, because the off-payroll rules can pull the fee back into PAYE, and the treaty analysis then has to follow the money through the company.

Our guide to reading a P60 for a US return explains why the figure on that form rarely matches what the American return needs.

Why an American director can owe self-employment tax

Because America treats an outside director as carrying on a business. Fees for serving on a board generally count as self-employment income, with the 15.3% charge applying on top of income tax. The foreign tax credit does not reduce it.

The social security agreement can change that. Where the director pays British National Insurance on the fees, a certificate of coverage can show that the British system applies instead. Without the certificate, both charges can land on the same fee.

In our practice this is the most common gap in a board member's return. The fee is modest, the director assumes payroll dealt with everything, and the American charge surfaces years later.

What about a British director on an American board?

The American company generally pays the fee and may withhold tax at source. The British director then reports the fee in Britain and claims credit for American tax. A non-resident American return may be needed to settle the correct amount.

State tax can also appear. A company based in one state may expect a state return from a director who attends meetings there, depending on that state's rules.

Does it matter if the company is private?

Not for the treaty. The directors' article applies to directors of any company resident in the other country, listed or private. What changes is the paperwork. A small private company may not run a payroll at all, so the director reports and pays the tax directly.

Start-up boards raise a further question. Directors are often paid partly in shares or options, and those follow their own rules on timing and valuation in both countries.

What about shares or options instead of fees?

Equity for board service is still pay for being a director. Britain generally taxes shares received as income at their market value, and America does the same unless an election or a deferral applies. The timing can differ, so the two returns may show the income in different years.

Options add another layer. Our clients with board options usually need a schedule of grant, vesting and exercise dates for each tranche, because the two countries tax at different points.

A worked example

The figures below are illustrative. Take an example: an American living in Edinburgh sits on the board of a British listed company for a £60,000 annual fee.

The company runs the fee through payroll, deducting PAYE and National Insurance. Britain has first claim, and it collects through the payslip.

On the American return, the director reports the fee converted into dollars and claims credit for British tax. Without a certificate of coverage, self-employment tax near $12,000 also appears. With one, that charge falls away.

Expenses and benefits

Boards often pay travel, hotels and dinners around meetings. Britain has specific rules for non-executive travel to board meetings, and some of it can be paid tax free. America looks at the same costs through its own lens.

Home-to-meeting travel is the gray area. Britain has a specific relief for non-executives, while America asks whether the trip serves the business or the director.

Keep the itineraries and receipts. A reimbursement that is tax free in one country can be income in the other, and the difference only shows when someone compares the two returns.

Spouses traveling to board dinners are a common example. The company may see the cost as part of the role, yet both tax systems can treat it as a personal benefit to the director. Ask before accepting, not afterwards.

How to set up a new board appointment

Most problems come from assuming someone else dealt with the tax. A short checklist at the point of appointment avoids nearly all of them.

1. Confirm where the company is resident, because that country taxes the fees first.
2. Ask how the company will pay the fee and whether payroll will deduct tax.
3. Check National Insurance treatment and apply for a certificate of coverage if needed.
4. Record the fee, the tax withheld and the exchange rate for each payment.
5. Report the fee in your home country and claim credit for the tax already paid.
6. Review expense reimbursements against the rules in both countries.
7. Revisit the position if you move, because the credit direction can change.

What changes if you move country during a term?

The company's country keeps its first right, so the fee stays taxed there. What changes is your home country, and therefore the credit. An American moving from London to Boston keeps paying British tax on British director fees, now credited on an American return as a US resident.

Social security can shift too. A move can end British National Insurance coverage and bring American self-employment tax into play, so check the position in the year of the move.

How long should you keep the records?

At least six years after the last fee, and longer where equity is involved. Keep the appointment letter, each payslip or remittance, the certificate of coverage and the expense claims. Store them by tax year for both countries.

A board seat can run for a decade. A question about year two can arrive in year nine, and by then the company secretary may have changed twice.

Mistakes and penalties we see with board fees

• Assuming the short-stay employee exemption covers director fees, which it does not.
• Leaving the fee off the home country return because payroll already taxed it.
• Missing American self-employment tax on fees paid through British payroll.
• Claiming credit for National Insurance as if it were income tax.
• Treating board travel as tax free in both countries without checking either set of rules.
• Forgetting a state return for meetings held in an American state.

The penalties follow the usual pattern in each system. Late or inaccurate returns bring charges and interest, and a self-employment tax notice usually arrives years after the fee, with interest from the original due date.

Most of these gaps take minutes to prevent at the point of appointment. They take far longer to unwind once several years of fees have gone unreported.

How US UK Tax Accountants helps

We review the appointment letter, set up the social security position, and handle the returns in both countries. Most board members need an hour of planning and then very little. If you hold or are taking a seat across the Atlantic, get in touch and we will map the fees alongside your US federal returns. Our guide to US secondments covers the employment side.

Last reviewed 21 September 2026. This article is general information and not personal tax advice. Board arrangements vary, so check your own appointment terms before relying on any of it.