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Working out directors NIC Contributions

  • Student
  • 3 posts
  • # 117780

I have no idea why, but I really cant get my stupid head around Directors NIC workings...

 

Can anyone explain it in really simple terms :-)

 

Thanks all 

 

Chrissie

  • Member PM.Dip
  • Practice Licence
  • 36 posts
  • # 117781

Hi Chrissie,

It can be confusing so don't beat yourself up too much :)

There are two ways of working out NIC calcualtions and I've detailed this below:

Culmulative/Standard Method

This method is used to calculate NI on total earnings to date each time a Director is paid they receive an NI free amount, currently £8,632 and pay NI on any amounts above this threshold. This method is normally used for Directors who receive irregular amounts.

e.g.

April - £5,000 - No NIC 

June - £5,000 - NIC Payable as below

Total pay to date = £10,000. NIC Calculated on £10,000 minus £8,632 (NIC free amount) = £1,368.00
NIC due on £1,368 @ 12% = £164.16. 
Employer NIC due on £1,368 @ 13.8% = £188.78 to pay to HMRC for period

August - £5000 - NIC Payable as below

Total pay to date = £15,000. NIC Calculated on £15,000 minus £8,632 (NIC free amount) = £6368.00
NIC due on £6368 @ 12% = £764.16.
Deduct NIC already paid of £164.16 = £600 to deduct.
Employer NIC due on £6368 @ 13.8% = £878.78 minus £188.78 already paid leaving £690.00 to pay to HMRC for period.

Non Cumulative/Alternative Method:

For this method, NIC is calculated much like an employee, on each pay packet.

This means that the monthly threshold rather than the annual threshold is used to calculate payable NIC e.g.

April - £1,000

£1,000 - £719 = £281

£281 @ 12% = £33.72 to deduct

With both methods I would always perform an NIC check using the HMRC calculator before the final pay of the year is processed to ensure that the correct amounts have been deducted, available via the below link:

https://www.gov.uk/guidance/hmrc-tools-and-calculators#national-insurance

Regards,

Jaye

  • Student
  • 3 posts
  • # 117784

Thank you so much Smile

  • Member PM.Dip
  • Practice Licence
  • 36 posts
  • # 117786

No problem at all, happy to help Smile

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