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. Similar to PAYE tax, the director’s NI liability calculates based on their year-to-date earnings. Pro rata cumulative method This happens when: - An existing employee becomes a director part-way through the tax year
- A director joins the company as a new employee part-way through the tax year
The new director will have their NI liability calculated on a pro-rata basis. This bases the earnings thresholds on the amount of time remaining in the tax year. These start on the week in which the directorship began in the tax year, even when you pay the director monthly. Example of how pro-rata thresholds calculate This example uses the 2023/2024 NI thresholds.
Charlie joins the company as a director on 19 June. This is in week 11 of the tax year. This means that they are a director for 42 weeks of the tax year, from week 11 until week 52.
Their pro-rata PT calculates as follows:
Pro-rata PT = (annual PT / 52) * weeks remaining in the tax year
The value rounds up to the nearest pound, if necessary.
In this example, this means that:
Pro-rata PT = (£12,570 / 52) * 42) = £10,153
Charlie becomes liable for NI when their earnings to date in this tax year exceed £10,153. | |