Directors National Insurance

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Solution ID:

222001000101684

Last Modified Date:

Thu Jan 02 16:04:50 UTC 2025

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Directors National Insurance

Description

Directors National Insurance (NI) calculates differently than a standard employees NI. This is because a directors NI is based on an annual threshold.

NI for a standard employee always calculates on a non-cumulative basis. This means their liability calculates in each pay run. Unlike calculating PAYE tax, any previous earnings or deductions in the tax year and not included.

Directors have the choice of two different methods. This allows them more control on how they pay NI during the tax year.

Cause

Resolution

The chosen method affects when the director pays their NI liability during the tax year. Regardless of the method, they’ll still pay the same amount of NI by the end of the year.

Calculate NI cumulatively. Most common for directors paid on a none regular basis

Calculate NI per pay run. Most common for directors paid on a regular basis

Directors must end the tax year or their employment on the Cumulative method. The method automatically adjusts and can lead to the final NI amount being smaller or larger than expected.

NOTE: When Directorships start part-way through the tax year, the cumulative method applies until the end of the tax year. This is even if you choose the per-pay run method.

▼Calculate NI cumulatively

This method calculates the director’s NI liability on a year-to-date basis in each pay run. It uses the annual earnings thresholds.

This means the director can earn up to the annual Primary Threshold (PT) before they begin to pay NI. It ensures the director is up to date with their NI contributions when the current pay run is complete.

For more information, read Directors' National Insurance - Cumulative method.

▼Calculate NI per pay run

This method calculates the director’s NI liability on a weekly or monthly basis in each pay run. It does this using weekly or monthly earnings thresholds.

The directors NI contributions calculate in the same way as a standard employee until the end of the tax year. At this point, it’s recalculated on a cumulative basis.

The per pay run method spreads NI more evenly throughout the year. With the cumulative method, the director won’t pay any NI until they reach the annual primary threshold (PT). They’ll then pay NI on everything they earn over that.

For more information, read Directors' National Insurance - Per pay run.

▼Changing the NI calculation method

You can still change the directors’ NI calculation method even after you’ve processed a pay run.

Depending on what you are changing to and from, combined with previous calculations, you can see:

Previous pay runs in the tax year recalculating
A correction line in the next processing period

For more information, read Changing a directors National Insurance calculation method.

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