National Insurance (NI) legislation changed during the 2023/2024 tax year. These changes impact director's NI calculations differently depending whether the director's NI is on the pro rata basis or annual basis.

If you'd like to find out more about the changes, visit our national insurance from the Autumn Statement 2023 guide.

Director (Pro-rata basis)

NI for a pro rata basis director is calculated in the same way as an employee for the majority of the tax year. You can see examples of the employee calculation in our Employee National Insurance (NI) calculations guide.

An exception is that HMRC require that you calculate director's NI using the cumulative NI calculation in the final period of the tax year. Don't worry though, your software completes this automatically when you process this period.

You can view an example of these in the Director (Annual basis) section. The annualised directors NI threshold and rates apply in these calculations.

Director (Pro rata) who leaves during the tax year

When a pro rata basis director leaves during the tax year, the calculation changes. HMRC require that you use the year to date calculation in all directors' final payment.

Your software completes this automatically when you select the final payment checkbox in enter payments.

Director (Annual basis)

As NI rates changed during the 2023/2024 tax year, HMRC have simplified NI for directors. Instead of using two rates, a single annualised rate applies for the whole tax year.

Annual basis directors receive their full annual NI allowance from the beginning of the tax year before they pay any NI. This means they pay little or no NI at the beginning of the tax year, then pay more in later months. 

 NOTE: This calculation doesn't change at the end of the tax year for Annual basis directors, as it's already a cumulative calculation in each period. 

Rounding

As Sage 50 Payroll calculates NI using the exact percentage method, some calculations result in more than two decimal places.

HMRC have specified rules to apply when rounding more than two decimal places in NI calculations. Only the third decimal place is used, and any beyond this aren't used when rounding. If the third decimal place is:

• 5 or below, it's rounded down
• 6 or above, it's rounded up

For example, if an employee's NI due is calculated as:

• £55.12599, this is rounded down to £55.12 as the third decimal place is 5
• £55.12601, this is rounded up to £55.13 as the third decimal place is 6

Examples

In these examples the director (annual basis) earns £5000 each month, and is on NI category A. 

Click a month below to view the breakdown of the calculation for that period.

• Month 1 >

  
  

  	Employee's Pay	Employee NI contribution rate	Employee NI contributions	Employer NI contribution rate	Employer NI contributions
  Earnings up to the secondary threshold (ST)	Up to £9100 = £5000	0%	£5000 @ 0% = £0	0%	£5000 @ 0% = £0
  Earnings between the ST and freeport upper secondary threshold (FUST)	From £9100.01 to £25000 = £0	0%	£0 @ 0% = £0	13.8%	£0 @ 13.8% = £0
  Earnings between the directors primary threshold (DPT) and upper earnings limit (UEL)	From £12570.01 to £50270 = £0	11.5%	£0 @ 11.5% = £0	0%	£0 @ 0% = £0
  Earnings between the FUST and UEL	£25000 to £50270 = £0	0%	£0 @ 0% = £0	13.8%	£0 @ 13.8% = £0
  Earnings above the UEL	Above £50270.01 = £0	2%	£0 @ 2% = £0	13.8%	£0 @ 13.8% = £0
  Total NI due for the period			£0.00		£0.00

  As this calculation method applies the annual thresholds from the start of the year, the employee and employer have no NI liability in month 1. All of the director's earnings in month 1 are below the secondary threshold, at which the contribution rate is 0%.

  ---

• Month 2 >

  
  

  The director earns another £5000, taking their total for the year to £10,000.

  	Employee's Pay	Employee NI contribution rate	Employee NI contributions	Employer NI contribution rate	Employer NI contributions
  Earnings up to the secondary threshold (ST)	Up to £9100 = £9100	0%	£9100 @ 0% = £0	0%	£9100 @ 0% = £0
  Earnings between the ST and freeport upper secondary threshold (FUST)	From £9100.01 to £25000 £10000 - £9100.01 = £899.99	0%	£899.99 @ 0% = £0	13.8%	£899.99 @ 13.8% = £124.20
  Earnings between the directors primary threshold (DPT) and upper earnings limit (UEL)	From £12570.01 to £50270.00 = £0	11.5%	£0 @ 11.5% = £0	0%	£0 @ 0% = £0
  Earnings between the FUST and UEL	£25000 to £50270 = £0	0%	£0 @ 0% = £0	13.8%	£0 @ 13.8% = £0
  Earnings above the UEL	Above £50270.01 = £0	2%	£0 @ 2% = £0	13.8%	£0 @ 13.8% = £0
  Total NI due for the period			£0		£124.20

  The employer has £130.77 NI liability in month 2, and the director has no employee NI liability.

  ---

• Month 3 >

  The director's earnings so far this year are now £15,000. 

  	Employee's Pay	Employee NI contribution rate	Employee NI contributions	Employer NI contribution rate	Employer NI contributions
  Earnings up to the secondary threshold (ST)	Up to £9100 = £9100	0%	£9100 @ 0% = £0	0%	£9100 @ 0% = £0
  Earnings between the ST and freeport upper secondary threshold (FUST)	From £9100.01 to £25,000 £15000 - £9100.01 = £5899.09	0%	£5899.09 @ 0% = £0	13.8%	£5899.99 @ 13.8 % = £814.20
  Earnings between the directors primary threshold (DPT) and upper earnings limit (UEL)	From £12570.01 to £50270.00  £15000 - £12570.01 = £2429.99	11.5%	£2429.99 @ 11.5% = £279.45	0%	£2429.99 @ 0% = £0
  Earnings between the FUST and UEL	£25000 to £50270 = £0	0%	£0 @ 0% = £0	13.8%	£0 @ 13.8% = £0
  Earnings above the UEL	Above £50270.01 = £0	2%	£0 @ 2% = £0	13.8%	£0 @ 13.8% = £0
  Total NI due for the tax year	N/A	N/A	£279.45	N/A	£814.20
  Less NI paid so far	N/A	N/A	-£0	N/A	-£124.20
  Total due in month 3	N/A	N/A	£279.45	N/A	£690.00

  The director's earnings now exceed the threshold to pay employee NI. As a result, NI liability jumps up for both employee and employer. Employee liability is £393.61 for the period. The employers NI has also increased to £726.50 as there are more earnings applicable to the calculation this period. Once the NI due for the year is calculated, you must deduct any NI already paid to check the amount due in the period you're processing.

  ---

• Month 12 >

  As this is the final month of the tax year, the director's earnings for the full year apply to the calculation. This calculation is also used for a pro rata basis director in the final pay period of the tax year. Based on £5,000 per month, the Total earnings in the 12 months are £60,000.

  	Employee's Pay	Employee NI contribution rate	Employee NI contributions	Employer NI contribution rate	Employer NI contributions
  Earnings up to the secondary threshold (ST)	Up to £9100 = £9100	0%	£9100 @ 0% = £0	0%	£9100 @ 0% = £0
  Earnings between the ST and freeport upper secondary threshold (FUST)	From £9100.01 to £25000 £25000 - £9100.01 = £15899.99	0%	£15899.09 @ 0% = £0	13.8%	£15899.99 @ 13.8 % = £2194.20
  Earnings between the directors primary threshold (DPT) and upper earnings limit (UEL)	From £12570.01 to £50270.00  £50270 - £12570.01 = £37699.99	11.5%	£37699.99 @ 11.5% = £4335.50	0%	£37699.99 @ 0% = £0
  Earnings between the FUST and UEL	£25000 to £50270 = £0 £50270 - £25000 = £25270	0%	£25270 @ 0% = £0	13.8%	£25270 @ 13.8% = £3487.26
  Earnings above the UEL	Above £50270.01 £60000 - £50270.01 = £9729.99	2%	£9729.99 @ 2% = £194.60	13.8%	£9729.99 @ 13.8% = £1342.74
  Total NI due for the tax year	N/A	N/A	£4530.10	N/A	£7024.20
  Less NI paid so far	N/A	N/A	-£4430.10	N/A	-£6334.20
  Total due in month 12	N/A	N/A	£100.00	N/A	£690.00

  The total employeeNI due for the tax year is £4530.10 for the director and £7395.77 for the employer. The employee NI due is low compared to month 3, as the director's earnings have passed the UEL. NI calculates at 2% from this point.

  The NI due in month 12 is:

  • 'Employee' (The Director) : £4530.10 - (£4430.10) = £100.00
  • Employer: £7024.20 - £6334.20 = £690.00

  If the director's payments have varied each month during the year, it's likely that their NI due in month 12 will be different to the amounts they've paid during the year. For example, this might happen if they've had a big bonus payment in one month, then smaller amounts for the rest of the year.

Director starts part-way through the tax year

When a director starts part-way through a tax year, their NI thresholds are prorated based on the week their directorship began. This also applies to an employee who's promoted to director during the tax year.

In either of these cases, you must enter the correct date directorship began to the employee's record:

1. Double click the employee to open their record.
2. Click the Employment tab then click YTD Values.
3. Click the Director's NIC tab.
4. Enter the Date Directorship Began, then click OK.
5. Click Save then Close.

Your software uses the prorated NI thresholds from the next period you process. The calculation for an annual basis director is the same as the examples in this page, except they use the prorated thresholds.

For more information, and to view the prorated thresholds, visit HM Revenue and Customs National Insurance for Company Directors - CA44.

Change of NI category for Director

If you change a director's NI category, your software calculates the correct amounts of NI automatically. If the director's NI is calculated on the Pro Rata basis, the correct amount of NI is calculated in their final pay period of the year, or, if they leave part-way through the year in their final payment.

There is a certain order HMRC state that you must follow when calculating NI where a change of NI category has taken place. The order is as follows:

1. E
2. B
3. D
4. A

Sage 50 Payroll calculates NI correctly based on this order.

The calculation also depends on how much the director earned whilst on each NI category. 

To learn more, visit our director's NI recalculation after mid-year NI category change guide.

You can also check HMRC CA44 National Insurance for Company Directors.

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