Most employees will pay Class 1 National Insurance each pay day. The weekly threshold is £157 a week with the monthly threshold being £680. If an employee earns above these amounts, they will start paying National Insurance above the threshold at 12%. National Insurance for Company Directors can be worked out differently.
Rather than a calculating their National Insurance each pay period, Company Directors can opt to have their salary assessed on a cumulative basis until they reach the annual threshold of £8,164. A director who wants to take advantage of this concession must ensure that the payroll software records them as a director rather than as a standard employee.
The payroll year runs from 6th April to 5th April. Any person who is a director at the start of the year (on 5th April) keeps their annual earnings period even if they cease to be a director during the year. A director appointed during the year has a pro-rata earnings period based on the number of weeks left in the year divided by 52. The regulations governing this are part of the Social Security (Contributions) Regulations 2001 – Regulation 8, section 2. For further guidance please refer to the HMRC National Insurance Manual.
The split between dividends and salary for a director is not straightforward if you want to optimise your tax. Factors to consider include:
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