HMRC has updated their National Insurance guidance for company directors for 2021/2022.
Directors have to use an annual (or pro-rata annual) earnings period to work out their liability for Class 1 NICs. This figure has to include all the director’s earnings when working out NICs, including fees and bonuses.
Directors are classed as employees and pay National Insurance on annual income from salary bonuses over £9,568 on an annual basis.
But subject to the qualifying conditions, directors can make payments on account of directors’ NICs during the tax year based on the actual intervals of payment. This is usually weekly or monthly in the same way as for other employees.
Directors who have an account with their company may arrange for the company to settle their personal bills and then charge the amount to their account. If you meet a director’s personal debt in this way and then debit the amount to the account, there is liability for NICs when:
- Accounts become overdrawn or there is an increase in the amount by which it is overdrawn.
- Debiting is made in anticipation of an earnings payment, for example, fees or bonuses.
NICs are due on the overdrawn amount or the increase in the overdrawn amount. Use the NICs rates and earnings period which apply when the account is debited.
Alternatively, there is no liability for NICs if:
- Debit is made in anticipation of an introduction of funds that are not earnings, for example, dividends, matured insurance policies or other personal income.
If you need any help understanding if and how much national insurance you need to pay contact us today.