Directors National Insurance Calculations

Company Directors are classed as employees and will still be subject to paying National Insurance. However, there are two different ways of calculating their NI and you need to take into account several factors to decide which method to use.

For example, if the director is paid annually the appropriate method would be to use the cumulative method.

Where as if an employee became a company director part way through the tax year you would be advised to calculate their National Insurance using the non cumulative (table) method.

Cumulative National Insurance Calculations

When using the cumulative method, the National Insurance is calculated based on the directors Year to Date earnings. The NI calculation will kick in once the Year to Date values hit the annual primary threshold for the tax year, e.g for 2016/17 this is £8,060.00 This may mean for some directors on a remuneration strategy to utilise their tax allowance but using cumulative method for NI, their NI contributions will not kick in for several months. It usually occurs in month 10 through to 12.

Non Cumulative National Insurance Contributions

For directors on a non cumulative basis, NI is calculated like an employees. So the calculation is based on the earning for each pay period. Once their earnings hit the primary threshold for the pay period National Insurance will be calculated. However, one the final pay period is reached i.e month 12 or week 52, the NI will normally be recalculated based on the cumulative basis, this will then take any shortfall that may have arisen or refund anything that has been over paid for the tax year. In this case it is important that the actual Directorship start date is provided as the cumulative rates will go from this date if Directorship started mid year or from 6th April for an established director.

Any earnings above the Upper Earnings Limit of £43K NIC will be calculated at 2%, in some cases you will see the NIC for a director drop.