Reasons for a Director's NI calculating incorrectly

If a director's NI appears to be incorrect, there are a few things you can check in your software.

Director status setting incorrect

To check the Director Status:

1. Click Employee then click Employee Record.
2. Click Employment.
3. Check whether the Director Status in the employee record: Director (Annual basis), or Director (Pro-rata basis).
4. If they're set up as:
   • Director (Annual basis):
     • And the director's earnings haven't reached the Primary Threshold (PT), then no NI is due
       
       TIP:

       The PT is £12,570 for both the 2025/2026 and 2026/2027 tax years.

   • Director (Pro-rata basis):
     • They pay NI before reaching the annual PT
     • And it's the last period in the tax year, or you selected the Final Pay Run is checkbox, the NI calculation is cumulative

If you processed the director incorrectly, for example using employee status, roll back their incorrect payments. You then need to reprocess their payments from the first pay period processed incorrectly.

Director status changed mid year

There's legislation determines which changes you can make to an employee’s director status part-way through the tax year.

• You can't change a Director (Annual basis) to Director (Pro-rata basis) part-way through the tax year
• You can't change either type of director back to a Non-Director during the tax year

If you made either of the two changes above incorrectly, restore a backup or recover the data to before the change and correct it.

If a director returns to employee status, continue to process them as a director until the end of the tax year then change their status.

You then need to reprocess your payroll until it's back up to date, and submit an FPS adjustment to inform HMRC of the changes.

The directorship start date is incorrect

When you set the employee's Director Status to Director or Director (Pro-rata basis), the directorship began date defaults to the process date.

If the date directorship began is incorrect, it affects the annual NI bands used to calculate the NI. This causes incorrect NI calculations.

To check the directorship start date:

1. Click Employee then Employee Record.
2. Click Employment then YTD Values.
3. Click Director's NIC.
4. Check the Date Directorship Began.

The employee became a director mid-tax year

The date directorship began must correctly reflect when the employee became a director.

If the date is incorrect, roll back to their first pay period, correct the directorship start date and reprocess the employee up to date.

If the employee has been director all tax year

Correct the date directorship began then Save the employee's record. The software will recalculate the correct NI for the director in the next pay period.

The pay frequency is incorrect

If the employee is Director (Pro-rata basis), the pay frequency affects the NI bands your software uses in the NI calculation.

For example, the pay frequency in your software is Monthly, but the payment is weekly. This means the director pays little or no NI, as your software is using the monthly NI bands.

To check the employee's pay frequency, click Employee then click Employee Record then Employment.

If the pay frequency is incorrect, roll back the employee to the first pay period you processed incorrectly, then reprocess the employee up to date.

The NI YTD values are either incorrect, or missing

Due to cumulative calculations, it's important that you enter the director's NI YTD values correctly, where required.

If the values are incorrect, roll back the employee, enter the correct YTDs, and reprocess the employee up to date.

To check the director's YTDs:

1. Click Employee then Employee Record.
2. Click Employment then YTD Values.
3. Click Director's NIC.

For more information about processing director's NI, refer to the processing directors article.

You selected the final payment checkbox in Enter Payments

If the employee's status is Director (Table Method), their NI calculation is period by period, like it is for employees. At the end of the tax year, or when they leave, the calculation is cumulative.

When a director leaves, select the Select this checkbox if your employee is leaving and this is their final payment checkbox in Enter Payments.

To find this option:

1. Select the employee on the Employee List.
2. Click Payroll then click Enter Payments.
3. The checkbox is near the bottom of Enter Payments.

Select this checkbox when you process the director's final payment. If you selected it in error, deselect the checkbox.

If you selected this checkbox incorrectly in a previous period, roll back to that period and reprocess it with the checkbox clear.

Other reasons for NI not calculating

If it’s none of the above, other common reasons for NI calculation issues are:

• Manual NI is enabled
• Their date of birth is incorrect, making them younger than 16 years old
• Their payments/deductions aren’t subject to NI
• You're using the wrong version of Sage 50 Payroll for the current tax year

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