NICs for Directors
Special rules have been setup for National Insurance
Contributions to be made on company directors. In this situation,
the Inland Revenue defines a company director as:
- A board/body member where the company is managed by a board
or similar body; or
- A single person where the company is managed by an individual.
These directors are classified as being office
holders, which means they are liable for Class 1 NICs, so long as
their earnings from their directors' role are chargeable to income
tax under employment income.
These different arrangements came into effect in
1999 when the earnings period for directors is annually, although
the NICs are assessed using shorter earnings periods until the final
earnings payment of the tax year is being made. At this point, companies
must:
- Re-assess the NICs due on directors because of their total earnings
in that tax year, on the basis of an annual earnings period;
- Deduct primary contributions due from their payment or, if these
earnings are insufficient to cover primary contributions, pay
the balance themselves;
- Adjust the final remittance in the tax year to the Inland Revenue
to take into account the re-assessment done; and
- Complete the Inland Revenue's End of Year Summary (form P14)
to show the NICs payable for the re-assessed year.
Such re-assessments should be done whenever directors
receive bonuses, so that the overall NICs are kept up-to-date with
overall earnings. Please remember that no matter when a director
is paid (weekly or monthly) earnings periods are taken to be either
annually or pro-rata annually.
When a director's total earnings are level to/higher
than the Upper Earnings Limit (UEL), they have to pay 1% of that
excess in NICs. Their company only pays NICs at the appropriate
contracted-out or not contracted-out percentage rate on all earnings
above the ET, including those which exceed the UEL. Reduced NIC's
can be paid if people fall into special circumstances, such as married
women or widows.
It can be a complicated and time-consuming task to maintain notes
of these separate wages, not to mention bonuses added during the
year. Therefore, leave the burden to Academy Accounting Ltd, who,
for a very reasonable fee, can sort all of this for you and your
company. For more information, call us today on 0141 891 5999 or
e-mail us at enquiry@academyaccounting.co.uk.
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