Directors NIC

[Stephen Warner]

I'm quite confused on directors NI.
Can any one give me some help.
Thanks
Steve

[twd]

Directors' NI operates on a cumulative basis. This means that directors will not pay National Insurance until their earnings reach the annual 'Earnings Thresehold' (which is currently £5,035).

This is done because directors can set when they get paid, and could easily manipulate the system and pay themselves say once a year at the end of March for example, and save on making NIC.

For example, say a directors salary was £45,000 and he decided he would take this in the last pay month of the year. Under the normal NI system where employees are paid monthly, this would result in NI of:

£420 at £Nil
£(2,795 - 420) at 11% = £261.25
and £(45,000 - 2,795) at 1% = £422.05.

TOTAL NI PAYABLE £683.30

However, the directors NI rule mean that NI would be payable as follows:

£5,035 at NIL
£(33,540 - 5,035) at 11% = £3,135.55
£(45,000 - 33,540) at 1% = £114.60

TOTAL NI PAYABLE £3,250.15

So, as shown directors must use special rules in order to avoid loss of NI contributions.