AAT Comment: What bookkeepers should know about director’s national insurance contributions

AAT_TeamAAT_Team Administrator Posts: 413
edited May 16 in Bookkeeping
Director’s NICs can be problematic for many payrollers as the methods used are different from those of other employees and can often seem problematic.

Here the aim is to demystify the process and ensure that the correct amounts are paid to HMRC.

Director’s national insurance contributions (NICs) are, unlike employees, calculated cumulatively using the ‘annual earnings’ method. This is because, historically, payment amounts and frequency of payments made to directors could be made in such a way that NICs could be avoided. This manipulation can no longer be done, but the method is still used to calculate the deductions.

Unfortunately, many employers do not apply the method correctly, and, knowing this, HMRC inspectors often focus on this area during a compliance review.

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