Directors’ NIC

Beware of the method by which NIC is assessed; it is different from employees! For employees you look at the earnings in an earnings period (week, month etc.) and apply the relevant rates to bands of earnings (0%, 12% or 2%). For a director, although the same method can be used, this has to be tested against the strict annual earnings basis that applies. This was brought in as directors can control when they are paid!

So if a director is appointed or resigns part way through the year the calculations are not necessarily straight forward giving rise to incorrect national insurance contributions being paid, or not getting a qualifying year for state pension purposes.

Where directors use the special method to calculate their NIC, and they are paid over the point at which NIC becomes payable, this can cause issues for cash flow as there will be a sudden hike of 12% in the deductions from pay.