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Directors NI Payment
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Will a Director pay more NI than a employee or much the same when paying monthly
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Its the same for both, and it matters not whether the NI is deducted weekly or monthly.
The only difference between the way NI is calculated for Directors and mere mortals is that HMRC demand that a track is kept of YTD NI contributions for Directors' employment, to prevent any temptation to pay themselves different amounts in different months, - thus enabling a minimisation of total NI paid through being able to play tunes with the Earnings Thresholds limits. This is impossible now as the total NI paid to date is tracked.
The only difference between the way NI is calculated for Directors and mere mortals is that HMRC demand that a track is kept of YTD NI contributions for Directors' employment, to prevent any temptation to pay themselves different amounts in different months, - thus enabling a minimisation of total NI paid through being able to play tunes with the Earnings Thresholds limits. This is impossible now as the total NI paid to date is tracked.
You can have a look at the guidance here, http://www.hmrc.gov.uk/nitables/ca44.pdf
To restate what buildersmate was saying (he's right but I don't think it was very clear).
Annually it will make no difference. A director earning �20k per year will pay the same NI as an employee earning �20k.
Month by month it WILL be different. An employee would pay the same amount every month. The director gets their full NI allowance up front and it's looked at cumulatively so they'd pay no NIC initially, then a higher amount per month until it catches up to the same figure at year end.
Annually it will make no difference. A director earning �20k per year will pay the same NI as an employee earning �20k.
Month by month it WILL be different. An employee would pay the same amount every month. The director gets their full NI allowance up front and it's looked at cumulatively so they'd pay no NIC initially, then a higher amount per month until it catches up to the same figure at year end.
I'm not sure that applies to all directors. Itd epends what you eman by director. A lot of people with a job title of director are just normal salaried employees- my last two employers called heads of department 'directors'. I assume the distiction for NI purposes applies only to directors as recognised by company law.
for the purposes of calcuatling NI, a director is defined as follows:-
a member of a board, or similar body where the company is managed by a board or similar body
�
a single person where the company is managed by an individual, or
�
if a director as defined in either of the above is accustomed to acting under the instructions of another person, that person will be a director.
As mentioned above, a Director's NI is calculated in a different manner to that of normal employees, but the result at the end of year will be the same. For directors who are paid regularly and evenly throughout the year, HMRC will allow the rules for regular employees to be adopted, thereby avoiding the jumps in levels of NI contributions that result from the strict rules, so long as a check is made at the year end.
This can produce underpayments if the director leaves part way through a tax year, and this concessional method should therefore only be used if the director and the person calculating the payroll fully understand what they are doing.
a member of a board, or similar body where the company is managed by a board or similar body
�
a single person where the company is managed by an individual, or
�
if a director as defined in either of the above is accustomed to acting under the instructions of another person, that person will be a director.
As mentioned above, a Director's NI is calculated in a different manner to that of normal employees, but the result at the end of year will be the same. For directors who are paid regularly and evenly throughout the year, HMRC will allow the rules for regular employees to be adopted, thereby avoiding the jumps in levels of NI contributions that result from the strict rules, so long as a check is made at the year end.
This can produce underpayments if the director leaves part way through a tax year, and this concessional method should therefore only be used if the director and the person calculating the payroll fully understand what they are doing.
Sorry to correct again bm, and I see kags has already done so too, but that's not what "director" means at all per the HMRC. Director is simply someone who is a director of the company in legal terms in that they have been appointed at companies house. There's no requirement to have ANY equity in the company. I deal with several directors who have their NIC calculated in that way and have no shareholding in the company in question.
However, it most certainly doesn't cover people who call themselves "director" by job title but aren't legal directors. I took that as obvious.
However, it most certainly doesn't cover people who call themselves "director" by job title but aren't legal directors. I took that as obvious.
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