Can a Director Approve Their Own Pay? Salary, Bonuses and Conflicts
This article is for you if:
You are a director deciding or defending your salary, bonus, benefits or expenses.
You are a shareholder questioning payments approved by an interested director.
A payment went through payroll but its company-law authority is unclear.
No universal statutory salary cap applies to a private-company director. Yet PAYE paid does not prove the company validly authorised the payment.
The practical test has six parts:
Question | Evidence to find |
|---|---|
Power | Operative articles, service agreement and member resolutions |
Process | Notice, quorum, voting and written-decision rules |
Conflict | Declaration of interest and the articles’ participation rules |
Purpose and duties | Commercial rationale, affordability and board information |
Tax and accounts | Payroll, benefits, ledger, accounts and bank trail |
Proof | Contemporaneous minutes, calculations and correspondence |
Sections 171–177 of the Companies Act 2006 cover acting within powers, promoting the company’s success, care, conflicts and declarations of interest. Several duties can apply to one payment.
Caira can read uploaded articles, service agreements, minutes and Excel ledgers, then compare the approval route with the payments actually made.
The articles matter more than assumptions
The model articles for private companies let directors determine remuneration for their services. They also contain collective-decision, quorum and conflict rules. A company may instead use amended articles, bespoke provisions or older Table A rules. A power given to “the directors” does not necessarily let one interested director act alone.
Consider a two-director company. One director proposes their own £60,000 bonus and the other agrees. If the interested director cannot count in the quorum under the operative articles, a commercially defensible bonus may still have a defective approval process.
Now consider a sole director and shareholder who pays a £35,000 year-end bonus through payroll. The payment may be permitted, but a signed decision should identify the amount, contractual basis, company performance and payroll instruction. The same person should record whether they are acting as director or member. One unexplained bank transfer cannot do that work.
Classification changes the answer
Payment label | What should match it |
|---|---|
Salary or bonus | Contract/resolution, PAYE and National Insurance records |
Dividend | Distributable profits, valid declaration and shareholder rights |
Expense | Receipt, business purpose and any personal element |
Benefit in kind | Approval plus reporting and tax treatment |
Director’s loan | A running loan-account balance, terms and repayments |
Pension contribution | Contract/approval and pension records |
The bank description is not decisive. A dividend is not salary merely because a director receives it; an unexplained withdrawal is not cured by later calling it a director’s loan.
Suppose a company pays an MD’s rent and school fees under “expenses”. HMRC’s current guidance recognises that private expenses can form remuneration if properly recorded and disclosed. That does not make them tax-free business expenses. Caira can organise uploaded payslips, receipts, P11Ds, bank statements and accounts into a plain-English payment-classification table.
Approval, entitlement and tax are separate
HMRC EIM42300 explains that a director’s entitlement to earnings can arise through the articles, member approval or a service agreement. A draft accounts entry does not always create an entitlement. Conversely, payroll treatment does not prove the board had authority.
Member approval is required for some long-term service contracts under section 188. Ratification under section 239 is technical: the interested director’s and connected members’ votes are disregarded as the section provides. It is not a universal eraser for tax, insolvency or creditor issues.
If records are missing, create a dated reconstruction that identifies its sources and uncertainties. Do not backdate minutes or present a reconstruction as an original record.
Questions people often avoid asking
I own every share. Can I simply take what I want?
No. The company remains a separate legal person. Record the capacity, authority and tax treatment for each payment.
Does running it through payroll make it valid?
It supports the tax trail, but does not cure missing authority, invalid quorum or a breach of duty.
Must shareholders approve every director salary?
Not always. The answer depends on the articles, contract and any specific statutory approval requirement.
Can we create the missing minutes now?
You can document a truthful reconstruction now. You should not invent or backdate a supposedly contemporaneous decision.
Caira provides easy-to-understand help with uploaded documents and drafting; there is a 14-day free trial, then plans from about £15 a month.
This article is general information for England and Wales, not legal, financial, tax or medical advice. Check figures, dates, approvals and tax entries against the original records.
