Company directors pay National Insurance (NI) the same as employees, it’s the calculation method that can vary.
Normal employees have the NI threshold split into monthly amounts, paying NI on anything earned over that monthly threshold. As standard, company directors pay NI on a cumulative basis, meaning you use all of the allowance upfront and then pay NI contributions on anything you take as wages after that.
For example, if you had a director taking a salary of £12,000 they wouldn’t pay any NI until they’d reached the current NI Class 1 primary threshold (where employees pay NI) which is £9880 per year (or £823 per month), regardless of when they take that salary (equally throughout the year or different amounts each month). If they took it as £1000 per month, they’d not pay any NI until month 10 when their total pay for the year would be £10,000 at which point they’d pay NI on the £120 that they’re over the threshold, then the next two months they’d pay on the full £1000 each month.
However, if they are going to be paid a regular amount each month, in our example £1000 per month, they can choose to go on the standard NI method, whereby they’d pay NI each month on the £177 that is over the monthly threshold. This method could be preferred if you’d rather have the NI contributions spread over the year rather than in the last three months of the year (in our example, this could be sooner or later depending on the salary).
NI thresholds for 2022-2023 can be found here
Of course, if you’ve any questions or queries please do not hesitate to get in touch for a chat.
