When it comes to directors making National Insurance contributions, different rules apply to that of sole traders. This article looks at the National Insurance obligations of a director of his/her own company and will consider both the liabilities of the director and the liabilities of the company (the employer) itself. 

What is National Insurance?

National Insurance is a system of contributions paid to qualify for certain benefits including the State Pension.

As a director you will pay National Insurance if you’re:

  • 16 or over
  • an employee (or director) earning above the earnings threshold (£162 a week for 2018/19).

You need a National Insurance number before you can start paying National Insurance contributions. Self-employed individuals are liable to Class 2 and Class 4 national insurance.

How much National Insurance will I pay?

National Insurance is more complicated for a company than it is for the self-employed. This is because any earnings that are paid to the director through the company are treated as wages and are therefore liable to Class 1 National Insurance contributions. This means where these wages exceed certain thresholds there will be an employee National Insurance liability (payable by the director, but deducted from the company from their pay) known as Class 1 primary. There will be an additional liability to the company known as employer's National Insurance or Class 1 secondary.

We will look at each one in turn below.

National insurance deductions

Director’s national insurance (Class 1 primary) and employer’s national insurance liability (Class 1 secondary).

The director’s National Insurance (Class 1 primary)

The director will pay National Insurance on their wages/salary/bonus paid through the company where the total for the year is in excess of £8,424 for 2018/19.

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The director’s national insurance (Class 1 primary)

They will pay 12% on the income between £8,424 and £46,350 and 2% on the excess. 

It is important to note that Class 1 primary is only due on the wages paid through the company. It is not paid on dividends. It is also important to note that the state pension credit for National Insurance actually kicks in once a director earns £5,876 for the year, which means paying a director between this and £8,424 through the company will entitle the director to state pension credit without triggering any national insurance.

This is one advantage of running a small business as a company rather than a sole trader.

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The employer’s National Insurance liability (Class 1 secondary)

The company will pay National Insurance on the director’s wages paid through the company where the total for the year is in excess of £8,424 for 2018/19.

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The employer’s national insurance liability (Class 1 secondary)

The company will pay a flat rate of 13.8% on the excess.

The employer’s National Insurance liability will be an expense to the company and therefore will reduce profits which in turn will save the company Corporation Tax.

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How and when will I pay National Insurance?

National Insurance on director’s salary is paid over to HMRC by the company in the same way as other employees, i.e. part of the PAYE process. The primary element is deducted from employees' and director's pay and paid to HMRC by the 19th of the following month (22nd if paid electronically) along with the employer’s contributions. 

Do I need to register to pay National Insurance?

As directors are classed as employees you will need to supply your employer with your National Insurance number to ensure your record is up-to-date.

 

Next Steps

National Insurance - deadlines and penalties for employers

If you employ staff you are responsible for deducting the correct amount of national insurance from the payments made to your employees. In addition employer’s national insurance contributions must also be made.

Read more

Self Assessment tax returns for sole traders

If you are self-employed you will pay your tax using a self-assessment tax return. This article will give you an overview of the self-assessment process and your legal obligations as a self-employed individual.

Read more

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