Directors' Remuneration

This Overheads code records the cost of directors' remuneration incurred in running the business. As an expense account, it normally carries a debit balance: debit entries increase the balance (recording new costs) and credit entries decrease it (for example, correcting an error or a refund received).

Real-world examples

Professional services partnership-style firm

A director of an accountancy or law firm receives an annual profit-related bonus on top of basic salary, voted and paid once year-end results are known — a £12,000 bonus posted as a debit to 7002 (Directors' Remuneration) and a credit to 1200 (Bank Current Account), kept separate from the regular monthly salary in 7001 so the two can be reported and taxed distinctly. No VAT applies, since remuneration is a payroll cost rather than a purchase of goods or services.

Family trading company with a company car

A director of a family-owned trading business is also provided with a company car for personal use — the taxable benefit-in-kind isn't paid in cash, but its notional cost (say £3,600 for the year) is still often tracked through 7002 alongside cash remuneration so the full reward package is visible in one place, reported to HMRC via a P11D rather than through payroll. Retail and trade businesses with vehicles on the fleet see this far more than office-based firms that don't offer cars as a benefit.

Commonly confused with

Because code 7001 (Directors' Salaries) sits right next to this one in Overheads, it's a common mis-posting target. Code 7002 is specifically for directors' remuneration, while 7001 covers directors' salaries — similar in nature, but keeping them separate is what makes the overheads section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Directors' Remuneration won't change total overhead spend, but it will distort the overheads breakdown that's usually reviewed line by line each month to spot cost creep.

Other codes in Overheads