Calculating a director's National Insurance is part of running payroll. In most cases, you use the standard annual earnings period and send a report to HMRC.
Information in this guide explains the process for working out National Insurance for company directors on salary and bonuses.
As a rule, the directors of a company need to pay National Insurance because they are 'classified as employees'.
They pay NI on any annual income received through salary and bonuses over the current threshold of £8,632.
But, you can use their annual earnings to work out their NI contributions - instead of using the amount a director earns in each pay period.
Calculating National Insurance for company directors is easier if you are using payroll software (e.g. BPT). Even though there are two ways to do it, you can usually change the method during the tax year.
The annual earnings period method is used most often for company directors who don't get paid on a regular basis.
The alternative method is used most often for company directors who receive regular pay.
You can use Full Payment Submission (FPS) to report directors' pay and deductions by inserting 'AN' or 'AL' into the field marked 'Director's NIC calculation method'. So for example, put (either):
Note: Remember to fill in the information needed to show the 'Week of director's appointment' in the relevant field.
In general, HM Revenue and Customs calculate company director NI contributions on annual earnings. But, you must make the payments to HMRC after running regular payroll tasks (e.g. weekly, monthly, quarterly).
Directors may be able to claim a National Insurance refund if their category letter changes (e.g. they join your contracted-out pension scheme).
If so, you can use your payroll software to recalculate their National Insurance. You can choose to do it when the change occurs or at the end of the relevant tax year.
Note: Another section explains more about how National Insurance rates and categories work and the different employee groups.
You would need to inform HMRC after paying an employee for the last time (e.g. when an employee stops being a director). Thus, you should delete the entry in your FPS marked 'Director's NIC calculation method'.
Use your payroll software to work out whether any National Insurance is due. You can then deduct any National Insurance owed by the company director from their last payment.
Your responsibility changes if the director stays on as your employee. In this case, you would need to calculate their NI based on their earnings for the whole of the tax year (e.g. as a director). Then, calculate their NI as an employee based on each pay period from the next tax year.
National Insurance for Company Directors in the United Kingdom