How is directors’ national insurance calculated?

Directors’ national insurance contributions are calculated cumulatively on an annual basis, unlike those for other employees which are calculated on a monthly or weekly basis.
No employee’s national insurance or employer’s national insurance contributions are payable on a director’s salary until the annual ‘earnings threshold’ is reached (This threshold is pro-rated if the director is appointed during the tax year).

Employer’s national insurance contributions are payable at the full rate on a director’s entire salary above the annual ‘earnings threshold’. Employee’s national insurance contributions are payable at the full rate on the entire salary between the annual ‘earnings threshold’ and the annual ‘upper earnings limit’. Above the annual ‘upper earnings limit’ employees then pay a further contribution at a reduced percentage of gross salary without limit. Your net salary will therefore fluctuate over the course of the tax year as your salary passes the various national insurance thresholds.

This legislation was introduced to prevent directors from paying themselves just once a year, using the contribution tables for the last week in the year, thus paying a negligible amount of national insurance.

Deferment of employee’s national insurance contributions

If you have more than one employment and expect your earnings in one or more of these employments to exceed the national insurance ‘upper earnings limit’ in a full year, you may apply to defer payment of contributions in any other employments you have. If deferment is granted, you will be required to pay only 1% of gross salary in those other employments unless the total contributions you have paid at the end of the tax year are less than the annual maximum. 

The form to apply for deferment (CA72a) can be downloaded from the HMRC website.

If no individual employment exceeds the limit, or if you have not applied for deferment, and your contributions exceed the prescribed annual maximum, you will receive a refund of contributions after the end of the tax year from HMRC (NIC office).

Amy FowlerHow is directors’ national insurance calculated?