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Directors National Insurance

Directors of businesses are classes as employees and are mandated to pay National Insurance on any income from salaries & bonuses over £8,060. Your National Insurance Contributions are calculated form your annual earnings rather than the amount you earn in each pay period.

You should be aware there are different rules for tax based on dividend income. You can read more on the HMRC website here.

Your company must also pay national insurance contributions on directors salaries, even if you are the only director / employee of the company.

Running Your Own Payroll

There are 2 ways to calculate your national insurance contributions, your payroll software or payroll provider will be able to do this for you.

Standard annual earnings method: (This is the most common method if you are paid irregularly)

  1. Each time you pay a director you should work out their NI contributions for their total pay over the entire tax year (this includes bonuses).
  2. Inorder to work out what the director owes you should work out their total NI bill and subtract this form the amount they have already paid this tax year.

Alternative method: (This is more common if you are paid regularly)

  1. Each time you pay a director you should work out their NI contribution for that period only (again including bonuses)
  2. At the end of the financial year you should work out if there is any additional NI to pay and duct this from their final pay check.

What You Have To Report To HMRC

You should report all directors pay & any deductions in your full payment submission. You should also note in the directors NIC calculation field AN (standard annual method) or AL (alternative method).

When Do You Have To Pay?

Directors contributions are calculated on annual earnings but you should pay HMCR whenever you run your usually payroll whether this be weekly, monthly or quarterly.

What To Do When a Director Leaves

After you have paid the director of the last time you should tell HMRC by deleting the Director’s NIC calculation method in the Full payment Submission.

Use you payroll software or your payroll company to work out if they own any outstanding amounts and then deduct this from their final paycheque.

If you have any questions about Directors National Insurance get in touch with us – were always happy to answer any questions.