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.
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 frequency | 6th April 2022 | 6th 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?
