S.305 and S.306 of CA 2014 deals with the disclosure of Directors Remuneration. The disclosure is required for both periods presented in the financial statements (directors remuneration includes remuneration paid/payable to connected persons*). See definition of connected persons below. Section 27 of Companies (Accounting) Act 2017 introduced a new Section – Section 305A. Section 305A requires disclosure of all payments made to third parties including companies which relate to remuneration/fees for the provision of directors services or for the provision of services relating to the management of the company – includes disclosure of amounts payable to the company, its subsidiaries, holding undertaking or any other person (S.305A is only applicable for all periods beginning on or after 1 January 2017). The specific disclosure requirements are disclosures of:
- Aggregate amounts of emoluments received/(receivable) by a director and or/his connected parties and any de-factor or shadow directors. Emoluments is defined in S.305(4) CA 2014 as:
- Salaries
- Fees
- Bonuses
- Any expense allowances chargeable to income tax (health insurance etc.)
- Estimated monetary value of benefits received other than in-cash (e.g. B.I.K)
- Disclosure of amounts payable to third parties for services of any person provided as a director; a director of a subsidiary; any holding company or any other person – each of these categories to be distinguished separately. Only applicable for all periods beginning on or after 1 January 2017).
- Gains by directors on exercise of share options (effective for periods beginning on or after 1 June 2015).
- Amount of money or value including shares but excluding share options under long term incentive schemes
- Contributions paid or payable to retirement benefit schemes (split by scheme)
- Compensation in respect of loss of office or other termination payments (if not relating to the Co. but to the subsidiary disclose this fact)
- S.305(13) makes it clear that amounts paid by a holding undertaking in respect of directors’ remuneration of a company forms part of the disclosures.
- If started part way through the period, disclosure only required from date of appointment.
* A connected person is defined in S.220 as a person that is connected to a director in the following ways:-
- a director’s spouse, civil partner, parent, brother, sister or child;
- a person acting in his or her capacity as the trustee of any trust, the principal;
- beneficiaries of which are that director, the spouse (or civil partner) or any;
- children of that director;
- or any body corporate which that director controls (50% or more of the equity whether directly or not or through a connected person whether control is exercised or not); or
- in partnership with that director.
- Connected persons however are not just “persons” as companies may be deemed to be connected persons also if a body corporate is controlled by the director or controlled by another body corporate that is controlled by the director. Control in this instance is defined as the director and other directors of the company or persons connected with the director.
- are interested in 50% or more of the shares of the body; or
- are entitled to exercise one-half or more of the voting power at a general meeting of the body
- On this basis in considering the evidential provisions we now also need to consider loans to group which are not 100% owned within the group and connected companies.
- S.221 Shadow Directors (who are individuals) – persons giving instructions to the director are related parties and should be considered
- S.222 De-Facto Directors – carrying out the duties of director although not formally appointed a director.
- Note Section 33 of FRS 102 would expand the definition of related parties and would include mother/father in laws.
Example 1: Mr X a director gets paid €100k from Company A. Company A also employs his adult son, Mr Y a pays him €25,000
Disclosures in the financial statements with regard to directors remuneration should disclose the €125k (can put a disclosure note to state that included within the amount is amounts paid to the directors children and specify the amount if preferred).
Any transaction other than wages with Mr Y should also be disclosed.
Example 2: Mr X a director of Parent A and subsidiary B which is 100% owned. During the year Sub B paid Mr X for his services to Parent A but did not recharge this. Disclosure should be made in the parent financial statements of the fact that Mr X has a contract of service with Sub B and the costs are not recharged by Sub B to Parent A, disclosure should also be given of the wage paid to Mr X for his services to Parent A.
Example 3: Mr X owns 100% of Company A which in turn owns 100% Company B. Company A has Mr X on the books as an employee and pays €100,000 for his services to both companies. €20,000 of this relates to services provided for Company B which is recharged to Company B.
In Company A’s financial statements it should disclose directors remuneration as €80,000.
In Company B, it should disclose directors’ remuneration of €20,000 and detail the fact that the contract of service is with a related company and costs are recharged.
If Co. B was only 95% owned by Co. A then the same disclosure would be required but in addition all transactions with Co. B would also have to be disclosed.
If we take this example and this time assume that a management charge is made but the wage element could not be determined this fact would need to be disclosed in Co. B as well as disclosing the total management charge recharged.