Directors NIC...

[billyboy120]

Hi guys,

Just setting up my PAYE, as a director of the company do I need to use directors cumulative NIC?

Also what's the advantages of using this as opposed to calculating as a standard employee?!?!

Bit baffled by this bit so any help greatly appreciated!!

Cheers!
Billy

[elainec100@cheapaccounting]

If you are a director then tick the box - if not don't!

It works out directors NI on a cumulative basis

[billyboy120]

ok that sounds simple!! lol

So as a director you have to use that type of NIC?

[MyAccountantOnline]

This might be useful -

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

[elainec100@cheapaccounting]

ok that sounds simple!! lol

So as a director you have to use that type of NIC?

It is standard NI calculated in a different way (cumulative) and you pay it according if you earn enough to have to pay it.

Check out the free one day PAYE course that HMRC offer

[Tom McClelland]

There is a little more to it than that.

Directors must have their NI calculated using the directors NIC rules. Basically these mean that rather than calculating NI independently for each payment NI is calculated using annual tables, with your total income in the PAYE year so far, and each time you do so you subtract the total NI that you've paid previously to arrive at this payment's NI bill. Tick the box in the software and that's the effect that you'll get.

So far so good.

But in fact directors in receipt of a regular wage greater than the Lower Earning Limit (£4940pa) have the option of calculating NI through the year just like a regular employee, and then just applying the annual calculation method outlined above in their final payment of the PAYE year. That means at year end they'll end up paying the same in total as someone who applied the director's rules through the year but their NI deduction profile until then will be flat through the months, just like a regular employee's.

Accredited software should offer you the opportunity to calculate directors NI but ignore the directors rules until the last period of the year.

Which directors NI calculation method should you use?

Your choice and your salary affects your payment profile.

If you earn more than the Upper Earnings Limit (£43875) annually then by having NI calculated as a director throughout the year you will pay your annual NI contribution earlier than a regular employee on the same salary. Cashflow negative to the director. For example a director earning £100k would pay almost all of their annual NI by month 5 if they apply directors rules every month.

If you earn less than the Upper Earnings Limit annually then by having NI calculated as a director throught the year you delay your NI contributions compared with those of a regular employee on the same salary. Cashflow positive to the director. For example a director earning £6000 a year would only pay any NI at all in month 12 if they apply directors rules every month.

[billyboy120]

There is a little more to it than that.

Directors must have their NI calculated using the directors NIC rules. Basically these mean that rather than calculating NI independently for each payment NI is calculated using annual tables, with your total income in the PAYE year so far, and each time you do so you subtract the total NI that you've paid previously to arrive at this payment's NI bill. Tick the box in the software and that's the effect that you'll get.

So far so good.

But in fact directors in receipt of a regular wage greater than the Lower Earning Limit (£4940pa) have the option of calculating NI through the year just like a regular employee, and then just applying the annual calculation method outlined above in their final payment of the PAYE year. That means at year end they'll end up paying the same in total as someone who applied the director's rules through the year but their NI deduction profile until then will be flat through the months, just like a regular employee's.

Accredited software should offer you the opportunity to calculate directors NI but ignore the directors rules until the last period of the year.

Which directors NI calculation method should you use?

Your choice and your salary affects your payment profile.

If you earn more than the Upper Earnings Limit (£43875) annually then by having NI calculated as a director throughout the year you will pay your annual NI contribution earlier than a regular employee on the same salary. Cashflow negative to the director. For example a director earning £100k would pay almost all of their annual NI by month 5 if they apply directors rules every month.

If you earn less than the Upper Earnings Limit annually then by having NI calculated as a director throught the year you delay your NI contributions compared with those of a regular employee on the same salary. Cashflow positive to the director. For example a director earning £6000 a year would only pay any NI at all in month 12 if they apply directors rules every month.

Perfect thanks for the info! I don't think I'll be above the upper earnings Limit just yet, so makes sense to go directors cumilative is suppose! Cheers!