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Calc for Tax Walkthrough (Part 4) - Calculating Directors National Insurance - YouTube
Channel: PayrollTips
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Welcome to the Timesaver:Calc for Tax Walkthrough
Part 4 - Calculating Directors National Insurance.
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Company directors are classified as office
holders, office holders fall into the definition
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of employed earners, and are liable for class
1 national insurance contributions.
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The earnings period for calculating national
insurance contributions is usually determined
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by the interval between payments.
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For example an employee who is monthly paid
will have a monthly earnings period.
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however to calculate national insurance for
company directors, you must ether use an annual
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earnings period or a pro-rata annual earnings
period.
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This means HRMC provide special annual earnings
levels, used for calculating directors national
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insurance, these are divided by 12 for monthly
pay frequencies or 52 for weekly and pro-rata.
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Pro-rater is used when an employee becomes
a director part way through the tax year and
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uses a weekly division of the annual earnings
levels regardless of if the employee is monthly
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paid or not, as it uses the number of weeks
the employee has been a director.
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So all you really need to know is if the employee
was a director from the beginning of the tax
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year or became a director part way through
the tax year.
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You can see at the top of the payslip screen
the DIR box, clicking this cycles through
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N, E, A, and P.
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N, is the default setting for calculating
normal employees.
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E, is used when the director has been a director
from the beginning of the tax year, and pretty
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much calculated as an employee.
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A, is reserved for calculating the last pay
period of the tax year, when the directors
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national insurance is forcibly calculated
on an annual basis.
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and P, is for pro-rater, when the employee
became a director part way through the tax
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year, when this option is selected the wk
box becomes enabled, this is where you enter
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the weeks as a director.
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Lets try calculating the simplest one first,
E, the director has been a director from the
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beginning of the tax year.
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We will give them a monthly basic pay of 拢3,000,
clicking calculate gives a national insurance
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value of 拢278.40.
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This is actually the same as if N was selected
in DIR box, but it is using the annual earning
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levels divided by 12.
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This is the simplest calculation for directors
national insurance contributions, and is the
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same for weekly, but moving on to Pro-Rata,
we have to do a bit of math to work out how
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many months the employee has been a director.
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Lets say an employee becomes a director from
the 1st of December, that's week 35, there
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are then 18 weeks left in the tax year as
a director.
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We do not enter any brought forward figures
from there previous employment as an employee,
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we set the monthly pay-period to 8 and weeks
as director to 18, then enter their basic
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pay as 拢4,000.
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This gives the director a national insurance
value of 拢140.88
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Now clicking next takes us to month 9, we
do not need to change weeks as director, that
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will stay as 18 throughout the rest of the
pay periods.
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Clicking calculate gives the director a national
insurance value of 拢480.00.
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Next and calculate again gives the director
a national insurance value of 拢480.00
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Next and calculate again gives the director
a national insurance value of 拢437.70
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Next and calculate again gives the director
a final national insurance value of 拢80.00.
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That was not so hard, of course there are more
complicated scenarios for directors, but normally
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they follow the same rules.
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I will leave a link in the description for
more detailed information about calculating
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directors national insurance.
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In the next video we will have a quick look
at the P45 screen.
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