Directors NI question

Directors NI question

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Met a potential client last week, he had been an employee half way through the year, and subsequently left to set up his own company and is the sole director.

Been paying himself salary since.

My question relates to directors NI, (which as we all know, is calculated on an annual basis), does the first few months he is employed count towards his limits or are they ignored as he is now a director.  Previous employment completely unconnected with current company.

Many thanks

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By neiltonks
09th Apr 2012 11:34

Pro-rata limits

For the year in which the director is appointed, you ignore the previous employment but when calculating the NI for the directorship, you pro-rata the annual earnings thresholds based on the number of tax weeks in the year during which the person was a director.

So for example if he became a director in tax week 10, the pro-rata calculation is based on 43 weeks (as he was a director in weeks 10 to 52 inclusive). You always use tax weeks for this calculation regardless of the director's payment frequency.

The various thresholds are calculated as follows:

• LEL, multiply the weekly LEL by the number of tax weeks in the pro rata earnings period
• ST, divide the annual ST by 52, multiply the answer by the number of tax weeks in the pro rata earnings period and round up to the next whole pound
• PT, divide the annual PT by 52, multiply the answer by the number of tax weeks in the pro rata earnings period and round up to the next whole pound
• UAP, multiply the weekly UAP by the number of tax weeks in the pro rata earnings period
• UEL, divide the annual UEL by 52, multiply the answer by the number of tax weeks in the pro rata earnings period and round up to the next whole pound.

If you need any further information, try HMRC booklet CA44:

http://www.hmrc.gov.uk/nitables/2011/ca44.pdf

 

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By zebaa
09th Apr 2012 14:53

Basis for NI

Neil gave a very full answer and I would just add one point. NI is done on a per employment basis unlike income tax. It is possible a director having multiple employments would pay no NI but would pay significant amounts of tax. Its an odd system.

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