Q&A Section

Q&A: 1). How Much National Insurance Will I Pay as a Company Director?

How Much National Insurance will I Pay as a Director?

For the purposes of NI, a company director is:

  • A member of a board or similar where the company is managed by the board; or
  • An individual where the company is managed by an individual; or
  • Any person who directs the work of one of the above.

The company is limited to a £3m total value of shares and an individual employee is limited to a total value of shares of £250,000.

Being a company director basically means you are an employee of your limited company and as such, you are liable for Class 1 primary NIC’s on your earnings.  However, unlike other employees, there are special rules for company directors.  The main point to remember is that despite the actual pay period, company directors’ NICs are calculated cumulatively using an annual earnings period method. This can be disadvantageous as although the director may be paid the same amount each month, the contributions deducted may vary significantly. It is possible, if certain qualifying conditions apply, to make payments on an alternative basis to allow contributions to be calculated on a non-cumulative basis which allows the liability to be evenly spread throughout the year.

Company directors will only pay class 1 NICs on income from salary and bonuses but there are different rules for tax on dividends.  For 2021/22 the thresholds are as follows:

  • Annual lower earnings limit – £6,240
  • Primary threshold – £9,568
  • Annual upper earnings limit – £50,270
  • Annual secondary threshold – £8,840

If an annual earning period is being used, you will not pay employee’s National Insurance if you earnings are below the lower earnings limit of £6,240.  Contributions are then at zero rate until earnings reach the primary threshold of £9,568.  After that, contributions are paid at a rate of 12% until the upper earnings limit of £50,270 is reached.  Contributions on earnings above that will be at a rate of 2%.

Similarly, for employer contributions, you will not pay any contributions until your earnings reach the secondary threshold of £8,840.  Contributions on earning above this will be at a rate of 13.8% on all further earnings in the year.

The contributions are deducted from each payment and are calculated by working out the contributions due using the annual thresholds and deducting any payments already made in the tax year.  You can check your payroll calculations manually using the Gov.UK Director’s National Insurance calculator.

For further information, refer to the HMRC National Insurance for company directors booklet.

If you are looking for some advice and guidance on this, then please get in touch with us on 020 7193 8798 or contact us via our website:- https://accountspro.co.uk/contact-us/

Tax Schemes

Share your growth potential with an EMI share incentive for employees

Enterprise Management Incentive (EMI) allows companies to offer flexible incentives that are tax-advantaged for companies and employees who meet the qualifying criteria.

This share option scheme is government-backed and allows you to share the ownership of your business with employees.  This is particularly beneficial to startups as it acts as an incentive to retain the best talent who will remain with the company as the business grows.

The company is limited to a £3m total value of shares and an individual employee is limited to a total value of shares of £250,000.

To qualify, companies must satisfy certain conditions:

 

  • The company must carry out a “qualifying trade” and must have a UK permanent establishment.
  • A “qualifying trade” is one that is carried out with the intention of making a profit.
  • “Non-qualifying” trades include farming, dealing in Iand, financial trading & banking, leasing and property development, provision of legal services and ship building.
  • Company assets must not exceed £30m at the time the EMI option is granted.
  • The shares must be granted in an independent company or in the case of a group, the parent company.
  • The company must have less than 250 full-time equivalent employees at the time the EMI option is granted.
  • A full-time employee is one who works 35 hours a week or more.
  • Employees must spend at least 25 hours a week, or if less 75% of their working time carry out the business of the company.

The shares are bought at a fixed price known as the Exercise Price which is agreed with HMRC.  Under this scheme the only tax that comes about is capital gains tax and this is at a reduced rate of 10% if the shares are held for more than 24 months.  The scheme provides a benefit for employees and encourages them to perform well.  Generally, no income tax or NIC are payable when an employee takes up the EMI option. As a startup this can help a company provide incentives to keep skilled and talented employees and attract future employees.

You can find out more about the EMI share scheme here:- https://www.gov.uk/tax-employee-share-schemes/enterprise-management-incentives-emis

We can help you setup an EMI share scheme. Contact us at AccountsPro on 020 7193 8798, via email at hello@accountspro.co.uk or send us a message via our contact page:- https://accountspro.co.uk/contact-us/