Mr Sorrell receives payment through JMS Financial Services, the privately owned company of which his mother, Sally, is also a director.
Under an agreement signed four years ago, Mr Sorrell is a consultant to the advertising company, which hires his services from JMS through a rolling five-year service contract with upward-only reviews.
JMS charges WPP an annual basic fee of pounds 500,000 (excluding value-added tax) in half- yearly instalments.
The arrangement enables Mr Sorrell to bypass PAYE and allows him to deduct allowable expenses against tax through JMS.
Last year John Birt, director-general of the BBC, was the subject of furious controversy after the Independent on Sunday revealed that he received his salary through a privately owned company. Mr Birt has since joined the BBC's payroll.
However, JMS does not provide any items claimed against tax by Mr Sorrell, as the company is not required to file a profit and loss account under accounting laws for small firms.
It had pounds 1.3m cash in the bank at 30 June 1993, though net assets amounted to pounds 421,000 compared with pounds 1.5m in December 1992.
WPP said Mr Sorrell's pay arrangements had been set up in 1987 and enabled it to avoid pensions and National Insurance contributions.
But the contract is under review. After bonus payments, Mr Sorrell's total pay package surged from pounds 510,000 to pounds 956,000 last year.
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