Solution Properties
Solution ID:
200427112447463
Last Modified Date:
Wed May 28 15:41:48 UTC 2025
Taxonomy Path:
Case category//I have a problem with...//processing
Author:
[email protected]
Director's National Insurance (NI) recalculation after mid-year category change
Description

When you process directors, their NI calculates differently to employees. This ensures that by the final pay period of the year, they pay the correct amount of NI. 

When a director changes NI category during the tax year, their recalculation is different to normal. The calculation depends on how much they earned on the original NI category. 

The Full Payment Submission (FPS) liability for this director also shows a different value, depending on their earnings on the original NI category.

Cause
Resolution

There are three main scenarios a director falls into when they change NI category mid-year:

  • They earned above the Primary Threshold (PT) while on the original NI category
  • They earned below the PT but above the Lower Earnings Limit (LEL) while on the original NI Category
  • They earned below the LEL while on the original NI category

Select an option below to find out more:

▼ Earnings above the PT on their original NI category

In this scenario, their NI calculation is in two stages.

First, your software recalculates earnings on their original NI Category using the annual thresholds. This is to ensure they paid the right NI while on that category.

The second recalculation works out any NI due on the new NI category.

During the second recalculation, your software applies the relevant annual NI thresholds as below:

  • The employee doesn't get any earnings below the PT (charged at 0%) on the new NI category. This is because they earned above the PT on their first NI category
  • This means that any NI on the second NI category calculates on their earnings immediately
    NOTE: This still applies to NI Category C. However, there's no employee NI on their earnings while on category C, as the employee NI rate on this category is 0%.
  • The Upper earnings limit (UEL) compares to their total earnings on either NI category. If it's above the UEL, the relevant NI rate applies to their earnings above this threshold

The net sum of these recalculations forms the total NI contributions due for the employee for the year.

FPS Liability

The FPS liability for employees in the final pay period of the year includes:

  • The rebated NI contributions from the original NI category
  • The total Employer NI contributions from the original NI category reallocated to the new NI Category
  • Any Employers NIC in the final period

You can reconcile the FPS liability in the final period by totalling the following items:

  • PAYE
  • Student Loan
  • Postgraduate Loan
  • Total Employee NIC for months on original NI Category
  • Total Employer's NIC for months on original NI Category
  • Employee's NIC liability this period
  • Employer's NIC liability this period
▼ Earnings below the PT but above the LEL on their original NI category

In this scenario, you rebate any NI contributions the employee paid while on the original NI Category. This is because their earnings are below the PT so they have no NI liability on the original category.

Use their earnings from the original NI category in the calculation for their new NI category. Calculate their total NI due for the year on the new NI category using their total earnings.

This reallocates any NI paid on the original NI category to the new NI category. For the employee, this is an NI rebate. For the employer, any NI paid reallocates to the new NI category, and reflected on the FPS. 

FPS Liability

The FPS liability for employees in the final pay period of the year includes:

  • The rebated NI contributions from the original NI category
  • The total Employer NI contributions from the original NI category reallocated to the new NI Category
  • Any employers NIC in the final period

You can reconcile the FPS liability in the final period by totalling the following items:

  • PAYE
  • Student Loan
  • Postgraduate Loan
  • Total Employee's NIC for months on original NI Category (as a rebate/negative)
  • Total Employer's NIC for months on original NI category
  • Employer's NIC due to this period
▼ Earnings below the LEL on their original NI category

In this scenario, your software rebates any NI contributions the employee paid while on the original NI Category. This is because their earnings are below the LEL so they have no NI liability on the original category.

Their earnings from the original NI category reallocate to the new NI category. Their NI recalculates on the new NI category using their total earnings for the year (including the earnings from the original NI category).

Therefore any NI the employee paid while on the original NI category reallocates to the new NI category. For the employee, this reallocates as an NI rebate. For the employer, your software reallocates any NI paid to the new NI category.

FPS Liability

The FPS liability for employees in the final pay period of the year includes

  • Any reallocated NI contributions from the Employer
  • Any Employer NIC in the final period
     TIP: Your software doesn't include the rebated employee amounts. 

You can reconcile the FPS liability in the final period by totalling the following items:

  • PAYE
  • Student Loan
  • Postgraduate Loan
  • Total Employer's NIC for months on original NI Category
  • Employer's NIC due to this period

 

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