Who is a Director for NI Purposes and which calculation should I use?
National Insurance Contributions (NICs) are calculated annually for company directors. This differs from the calculation used for normal employees who have their NICs calculated for every pay period.
A company director is one of:
- A member of a board of directors.
- A single person managing a company, even if that person is the company’s only employee.
- A person who directs the work of one of the above.
NICs become due once the director’s earnings exceed the Primary Threshold in a tax year. For the tax year 2019 this is £8,632.
There are two calculation methods that can be used.
- No NICs are due until the director has earned £8,632.
- NICs are then due at the standard rate.
This will result in the director paying little or no NICs at the start of the tax year and more at the end.
This is the best calculation to use if the director pay varies from month to month as all the NICs will be paid when they are due and there are no surprises in March.
- The director pays NICs in the same way as a normal employee each time they are paid.
- At the end of the year (or when the director’s employment ends) a final annual calculation is made, any difference between the amount due and the amount paid to date must be paid or refunded.
You should use this calculation if the director is paid the same amount each month as the NICs will be paid evenly throughout the year.
This calculation can cause problems if the director is paid a bonus one month or forgoes pay another as the final annual calculation may result in a large NI bill or refund.
If situations change the director can move from the alternative method to the annual method at any time in the year. They cannot move back from the annual to alternative method.
What if a directorship ends during the year?
If the director stops being a director but continues to be employed by the company, then they must remain a director for NI until the end of the tax year.
If the director leaves the company and is using the alternative method of calculation, then the final annual calculation is made the last time they are paid.