National Insurance for Company Directors

Optimise National Insurance for Company Directors

Most employees will pay Class 1 National Insurance each pay day.  The weekly threshold is £184 a week with the monthly threshold being £797.  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 £9,568.  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.

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?