We’ve been getting a lot of questions about directors National Insurance contributions (NICs) lately, so we’ve decided to answer them all in this short and sweet article.
in 2021 HMRC issued new National Insurance rules for directors, outlined and published in their ‘National Insurance for Company Directors – CA44’ booklet.
The changes mean that different national insurance rules apply to directors compared to standard employees and sole traders.
What is Directors’ National Insurance?
A form of national insurance that’s part of a system of contributions, paid to qualify for various benefits including your state pension.
Why do I have to pay it?
Directors are classed as company employees, so therefore must pay national insurance, like everyone else.
Many directors aren’t paid at regular intervals throughout a tax year, some are paid a few times a year, others in one lump sum. This meant that, previously, the correct NI contributions weren’t always calculated or taken, so HMRC made some changes.
How does it work?
As a director, you will pay National Insurance on your annual income and bonuses over £12,570.
This means you don’t pay anything until you’ve earned a total of £12,570. As an example, if your first monthly payslip was £6500 you wouldn’t pay any national insurance. If your second monthly payslip was then £6850, you’d start paying national insurance as you’ve earned over the £12,570 threshold.
£12,570 is the primary threshold for the 2023/24 tax year, so it will change in April 2024 and it’s important to check what the changes are.
The upper earnings limit is £50,270, which means once you’ve earned £12,570, you’ll pay National Insurance at 12% on all earnings until your year-to-date figure hits the threshold. After you’ve hit the upper earnings limit, contributions are then payable at 2% on all further earnings.
What are the options?
As a director, you can decide to have your national insurance calculated cumulatively or per pay run (also known as the alternative method).
If you’re paid irregularly, the cumulative method may be better suited, it’s what we’ve explained above, you don’t pay any national insurance until you meet the threshold.
The alternative method may be better suited if you’re paid regularly. This method calculates and deducts the NI due on a month-by-month basis.
Regardless of the method you choose, the correct amount of National Insurance will be taken from you each year.
Need help navigating national insurance?
We’re here to help! Feel free to get in touch. We also keep up to date and publish information on tax changes in the new tax year, so check be sure to check back!