Smarter accounting

National Insurance for Company Directors

5 February 2017, Charities, Companies, Creative Industries, Employer, Musicians

Optimise National Insurance for Company Directors

Most employees will pay Class 1 National Insurance each pay day.  The weekly threshold is £190 a week with the monthly threshold being £823 from 6th April 2022.  If an employee earns above these amounts, they will start paying National Insurance above the threshold at 13.25%.  National Insurance for Company Directors can be worked out differently.

The National Insurance increase will transfer to a Social Care Levy from April 2023.  To read more follow this link to see how the Health and Social Care Levy will affect you.

Employment Allowance

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 £9,880.  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.

Increase to National Insurance Threshold

The threshold for employees to start paying National Insurance increased on 6th April 2022 and again on 6th July 2022.

Pay frequency6th April 20226th July 2022
Weekly£ 190£242
Monthly£ 823£1,048
Annual£ 9,880£12,570

What happens if a director is appointed during the year?

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.

How to plan an optimum director salary

The split between dividends and salary for a director is not straightforward if you want to optimise your tax.  Factors to consider include:

  • Is the director the sole shareholder?
  • Does the director have other sources of income?
  • Is the employment allowance available to the director?

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