HMRC issues new national insurance guidance for company directorsby
Sarah Bradford summarises the special national insurance rules for company directors and sets out who is treated as a director for these purposes.
HMRC recently published its 2021/22 edition of booklet CA44, National Insurance for company directors.
Who is a company director?
A director is defined (in reg. 1 of the Social Security (Contributions) Regulations 2001 (SI 2001/1004)) as:
- A member of a board or similar body where the company is managed by a board or similar body;
- A single person where the company is managed by an individual.
The definition is extended to include a person under whose instructions a director as defined above is accustomed to act, but excludes anyone providing professional advice only when acting in a professional capacity (such as an accountant or a lawyer acting as such).
The need for the rules
National insurance contributions are normally calculated by reference to earnings paid only in that particular earnings period, using the thresholds appropriate to that earnings period (ie monthly thresholds for a monthly earnings period, weekly for a weekly earnings period, etc). No account is taken of earnings paid previously in the tax year.
As the liability on each pound of earnings is not the same, the way in which earnings are paid will affect the overall liability. Directors, particularly of personal and family companies, can determine how their remuneration is paid, making it possible to reduce their overall liability by manipulation of the earnings period rules, moving earnings from the 12% rate to the 2% rate.
Annual earnings period
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Sarah Bradford BA (Hons) FCA CTA (Fellow) is the director of Writetax Ltd (www.writetax.co.uk) and its sister company, Writetax Consultancy Services Ltd. She writes widely on tax and National Insurance contributions and is the author of National Insurance Contributions 2020/21 published by...