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Directors' NI

Bright Support
  • Updated

There are two possible methods of calculating Director's NIC:
 

  • Annual Basis
     
  • Pro-Rata Basis (Alternate Basis)

 

BrightPay facilitates both of these calculation methods. The user desired method of calculating NIC must be indicated at the first pay period for the Director and cannot be changed thereafter.

 

 

Annual Basis
 

HMRC guidelines advise that the Annual Basis is the preferred method for calculating Directors' NIC.

 

The Annual Basis assigns the NIC thresholds of LEL, PT, ST and UEL that apply to directors on an annual/ cumulative basis. This means that in week one of tax year 2025-26, for example, the thresholds assigned to the calculation of the NIC for that week will be:

  • LEL: £6,500
     
  • PT: £12,570
     
  • ST: £5,000
     
  • UEL: £50,270

 

Thus, the annual thresholds are assigned in total and the NIC is calculated on a constant cumulative basis:

  • calculate NIC's on the total earnings paid to the director each time a payment is made
     
  • deduct the NIC's already paid, if any, to arrive at the amount of NIC's now due

This method differs to the normal calculation of NIC for a non-director employee which, in week one, would only assign the weekly thresholds.

 
 

 

Pro-Rata Basis (Alternate Basis)

Since 6 April 1999, HMRC have operated alternative arrangements for the assessment and payment of NICs for company directors.

Under Regulation 8 of the Social Security (Contributions) Regulations 2001, the earnings period for the assessment of directors’ NICs remains an annual one. However, subject to the qualifying conditions below, you can, if you wish, make payments on account of directors’ NICs during the tax year based on the actual intervals of payment – usually weekly or monthly – in the same way as for other employees.

 

Qualifying Conditions

 

You will be able to take advantage of this arrangement if:

  • the director agrees to NICs being assessed in this way
     
  • the director normally receives his earnings in a payment pattern for which a regular earnings period can be established for the assessment of NICs,
     
  • and those payments normally exceed the LEL for the pay period concerned

 

Under the Pro-Rata Basis (Alternate Basis), when the final payment of the director’s earnings in the tax year (or directorship) is being made, you must then:

 

  • reassess the NICs due on the director’s total earnings for the tax year on the basis of an annual (or pro rata annual) earnings period, as appropriate.


Please note: HMRC guidelines state that this method can lead to disproportionate amounts of NIC being payable at year end.

 

This method differs to the Annual Basis in that it assigns the periodic LEL, PT, ST and UEL that apply to directors to each periodic wage/ salary instead. Therefore on a weekly basis in tax year 2025-26, the following NI thresholds are assigned:

 

  • LEL: £125
     
  • PT: £242
     
  • ST: £96
     
  • UEL: £967

 

Please refer to the HMRC guideline booklet 'CA44: National Insurance for Directors' for further information

 
 

 

Applying the Pro-Rata Basis in BrightPay


By default, the payroll system will automatically apply the Annual Basis for NIC calculation for Directors, as this is the preferred method of calculation by HMRC. 

 

To apply the pro-rata basis, click Employee:
 

1) Select the Director from the employee listing
 

2) Within their record, select the Tax/NICs/RTI section
 

3) Under the National Insurance Number, tick to indicate that the employee is a director
 

4) For Director's National Insurance, tick to 'Use alternate method for calculating directors' NICs
 

5) Click Save 




 

Please note it is not possible to override PAYE tax or NIC calculations on BrightPay. The workings are calculated based on a director's YTD information.

 

 

Q. Why is the director being charged NIC when their earnings are below the annual threshold?

A. Directors NIC is based on either the start date entered into the software under Starter/Leaver tab or the start of the Directorship. If they have been a director for the full tax year, then the start date would need to be on or before 6th April for that tax year and no date entered in the start of directorship field.

Any dates within the tax year in either of these fields will then trigger the software to pro-rata the thresholds based on the tax week that the start date / start of directorship falls into.

If there is NIC showing for a director that you believe should not be applied, check the start date of employment or start of directorship date fields and amend accordingly if required.