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How Directors National Insurance is calculated

Article ID
11596
Article Name
How Directors National Insurance is calculated
Created Date
20th November 2019
Product
IRIS PAYE-Master, IRIS Payroll Business, IRIS Bureau Payroll, IRIS Payroll Professional, Earnie, IRIS Earnie IQ
Problem

How is a Directors NI calculated differently from a regular employee?

Resolution

When you activate an employee within payroll as a director you change the basis for their NI calculations.

Directors get ALL of the NI allowance up front and will not pay contributions until their NIable earnings for the year reach the Primary Threshold (PT). This is £8,632 for 19/20

Once their earnings reach the PT they will pay 12% (assuming they are on NI rate A) on all their earnings until they reach the upper earnings limit (UEL). This is £50,000 for 19/20.

Once the NIable pay for the year exceeds the UEL the director will continue to pay 2% on all their NIable earnings.


An employee is promoted to a director during the tax year

When activating an employee as a director you will be asked to specify from which tax week.

This has the effect of pro-rating the above values for the period of the year remaining. E.g. Employee becomes a director in week 22. There are 31 weeks remaining in the tax year (including week 22 which would be calculated on the director rules) So their allowance would become (£8632÷ 52)*31 = £5146. This new director would start to pay NI contributions once their pay reaches £5146.01 since being appointed a director.

Remember:

It is important to note that once an employee has been processed using directors NI rules you CANNOT move back to the regular employee calculation until the start of the NEXT TAX YEAR. Even if this employee is no longer a director, they need to stay on this calculation basis for the remainder of the tax year.

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