National Insurance for Company Directors

Transcription

1 CA44 Nationa Insurance Contributions eries Nationa Insurance for Company Directors This manua gives detaied information about paying Nationa Insurance contributions for company directors It aso tes you about specia or unusua cases Use from 6 Apri 2008

2 Hep and further guidance Hep and further guidance about tax and Nationa Insurance contributions (NICs) is avaiabe from the foowing sources The Internet Go to our website at wwwhmrcgovuk/empoyers Your Empoyer CD-ROM Your Empoyer CD-ROM has most of the forms and guidance you wi need to run your payro throughout the year The CD-ROM has: a P11 cacuator that wi work out and record your empoyees tax, NICs and tudent Loan deductions every pay day with a inked P32 record of deductions that works out what you need to pay us a range of other Cacuators that work out car and car fue benefit, tatutory Payments and tudent Loan deductions a P45 checker that tes you what gross pay and tax to date figures to enter on the P11 for a new empoyee There is aso: a Learning Zone to hep you understand payro topics such as tatutory Payments, tudent Loan deductions and PAYE Onine a Payro Basics section for new and ess experienced empoyers expaining what to do when empoying someone for the first time Empoyer Hepbooks Our Empoyer Hepbooks are designed to hep you understand and operate PAYE, NICs and other payro reated matters The Hepbooks are for guidance ony, they are not comprehensive and have no ega force We aso have many other eafets and bookets that give further guidance, for exampe CWG2(2008) Empoyer Further Guide to PAYE and NICs CWG5(2008) Cass1A NICs on benefits in kind 480(2008) Expenses and Benefits - a tax guide 490(2008) Empoyee trave - A tax and NICs guide for empoyers You can view, downoad and print the fu range of Hepbooks, bookets and other forms and guidance from our website at wwwhmrcgovuk/empoyers or your Empoyer CD-ROM Or you can order copies from the Empoyer Orderine: from our website at wwwhmrcgovuk/empoyers/emp-formhtm by phone by fax Forms and guidance in Braie, arge print and audio For detais of empoyer forms and guidance in Braie, arger print or audio ca the Empoyer Orderine on and ask to speak to the Customer ervice Team Yr Iaith Gymraeg Ffoniwch i dderbyn fersiynau Cymraeg o ffurfenni a chanawiau By phone - Empoyer Hepines (We may record cas for quaity and training purposes) New empoyers and New Empoyer Hepine empoyers with ess than years payro experience Monday to Friday 08:00-20:00 aturday and unday 08:00-17:00 Empoyers with more than Empoyer Hepine 3 years payro experience Monday to Friday 08:00-20:00 aturday and unday 08:00-17:00 If you have a hearing or speech impairment, and (ony peope with speciaised use a textphone equipment such as Mincom are abe to use this service) A ist of Hepines and opening hours is avaiabe on our website at wwwhmrcgovuk/contactus/hepineshtm on your CD-ROM, and in your Empoyer Buetin Your HM Revenue & Customs office Your own HM Revenue & Customs office can aso hep you A our office contact detais are on our website at wwwhmrcgovuk/oca/empoyers/indexhtm Pease te us your Empoyer reference which is on correspondence from your HM Revenue & Customs office In Person We can offer you education and support on a aspects of your payro expaining what you need to do the deadines you need to meet the forms you need to fi in the records you need to keep We aso have a range of workshops which are free of charge on many payro topics You can get further information about the workshops from our website at wwwhmrcgovuk/bst, or you can ca the New Empoyer Hepine on Empoyer Hepine on Onine ervices For information about our onine services go to wwwhmrcgovuk/onine/indexhtm For hep and assistance using our onine services contact the Onine ervices Hepdesk E mai hepdesk@ir-efiegovuk teephone open 7 days a week 08:00-20:00

3 Contents page Introduction 2 The rues for company directors 3 Aternative arrangements for the assessment of directors NICs 4 Appying the annua (or pro-rata annua) earnings period rues 8 Directors earnings 11 Cacuating NICs 14 Paying NICs on account 16 More than one job 17 Change in category of contribution payabe 23 Recording NIC information 32 pecia circumstances 34 tatutory Payments 37 Exampes of PAYE form P11 38 Quick Guide to pro-rata annua earnings periods 40 Aphabetica index 41 1

4 Introduction 1 About this manua This manua repaces the Apri 2007 edition of CA44 Nationa Insurance for Company Directors gives detaied information about the different Nationa Insurance contribution (NIC) rues for company directors can aso be used for empoyees who have annua or pro-rata annua earnings periods The norma rues about NICs are in the Empoyer Hepbooks CWG2 Empoyer Further Guide to PAYE and NICs 2 If you are unhappy with our service If you are unhappy with any aspect of the service you have received from HM Revenue & Customs, you shoud compain to the manager at the office you have been deaing with More about this manua This manua is for guidance ony, and shoud not be regarded as a compete and authoritative statement of the aw A the exampes in this manua use the NICs rates and imits, and are for iustration purposes ony 2

5 The rues for company directors 3 Introduction This section describes what you need to know to work out NICs for company directors 4 Company directors Who is a company director? For NI purposes, Reguation 1 of the ocia ecurity (Contributions) Reguations 2001 defines a company director as a member of a board, or simiar body where the company is managed by a board or simiar body a singe person where the company is managed by an individua, or if a director as defined in either of the above is accustomed to acting under the instructions of another person, that person wi be a director This additiona rue wi not appy if the other person s instructions are imited to professiona advice, for exampe, the advice given by a soicitor Directors of Buiding ocieties which have not de-mutuaised are not normay company directors for NI purposes What is a company director iabe for? For NI purposes, a company director is cassified as an office hoder Under ection 2(1) of the ocia ecurity Contributions and Benefits Act 1992, (In rthern Ireand, ection 2(1) of the ocia ecurity Contributions and Benefits (rthern Ireand) Act 1992) an office hoder is iabe for Cass 1 NICs, provided the earnings received from that office are chargeabe to income tax under empoyment income 5 What you shoud do To assess NICs for company directors use an annua, or pro-rata annua, earnings period to cacuate NICs cacuate NICs on the tota earnings paid to the director each time a payment of earnings is made deduct the NICs aready paid, if any, to arrive at the amount of NICs now due incude a the director s earnings when cacuating NICs, incuding fees and bonuses record NIC information on one form P11 Deductions Working heet, and one form P14 End of Year ummary, uness this manua tes you otherwise you can adapt the NIC tabes to cacuate NICs, (see paragraph 40 page 14) you can use the exact percentage method to cacuate NICs (see paragraph 39 page 14) Aternativey: you can appy the arrangements for the assessment and payment of directors NICs outined in paragraphs 6-9, see pages 4-7 3

6 Aternative arrangements for the assessment of directors NICs 6 How it works ince 6 Apri 1999 HM Revenue & Customs has operated aternative arrangements for the assessment and payment of NICs for company directors Under Reguation 8 of the ocia ecurity (Contributions) Reguations 2001, the earnings period for the assessment of directors NICs remains an annua one but, subject to the quaifying conditions in paragraph 9, you can, if you wish, make payments on account of directors NICs during the tax year based on the actua intervas of payment - usuay weeky or monthy - in the same way as for other empoyees If you do choose to pay NICs in this way, you shoud appy the norma rues for assessing NICs, as set out in the CWG2 Empoyer Further Guide to PAYE and NICs, and the Empoyer Hepbooks 7 Last payment of earnings in tax year (or directorship) rmay you shoud assess NICs using the shorter earnings period throughout the year unti the ast payment of earnings in the tax year (or directorship) is being made (but see paragraph 8 page 7) When the fina payment of the director s earnings in the tax year (or directorship) is being made, you must reassess the NICs due on the director s tota earnings for the tax year on the basis of an annua, or pro-rata annua, earnings period, as appropriate either deduct the amount of primary contributions then due from the payment or, if the earnings are insufficient to cover the primary contributions then due, pay the baance yoursef adjust the fina (or, if the director eaves, or dies, during the year, the next) remittance in the tax year to HM Revenue & Customs to take into account the reassessment fi in the director s form P14 End of Year ummary to refect the NICs due for the year based on the reassessment Remember, even if you use the weeky or monthy rates and imits to cacuate NICs throughout the year, because directors have an annua earnings period you must sti refect the annua, or pro-rata annua, Lower Earnings Limit (LEL), Earnings Threshod (ET) and Upper Earnings Limit (UEL) figures on form P14 at the fina reassessment Under this particuar arrangement, regardess of the method used to cacuate NICs during the year, you can use either the exact percentage method or adapt the NIC tabes to cacuate the NICs at the fina reassessment 4

7 Exampe for the tax year Mr Armstrong is in not contracted-out empoyment and receives a reguar monthy saary of 1,558 An annua earnings period woud normay appy for the assessment of NICs However, as he is paid monthy, a monthy earnings period can be used to assess NICs during the tax year NICs due Monthy LEL = 390 On the fina payment of earnings in the tax year, reassess NICs on the tota earnings received by reference to an annua earnings period and adjust the fina remittance to HM Revenue & Customs accordingy Month 12 Earnings: 1,558 Tota earnings from the directorship in the tax year (12 x 1,558) = 18,696 Pease detach sheets and make separate bundes of Nationa Insurance and Tax copies before despatch Monthy ET = 453 Monthy UEL = 3,337 Month 1 Earnings Director s Company s NICs NICs 1, Based on an annua earnings period NICs due on 18,696 are: NIC Earnings Director s Company s Tota tabe NICs NICs NICs etter A 18,696 1, , ,15612 In month 12 of form P11, you must record the tota Record the NIC detais on form P11 but do not record earnings in coumns 1a - 1c and NICs figures for the in coumns 1a - 1c the earnings on which empoyee s year foowing the reassessment (not what fas to be contributions are payabe due just for month 12) Record these figures on End of For hep to fi in this form, Pease use back ink and write firmy to ensure your entries are cear see Year ummary form P14 By Empoyer month Hepbook 11, E10 on a three sheets spaces shoud be fied from the right-hand side P14 End of Year ummary Your name and address as empoyer HM Revenue & Customs office name NICs actuay payabe in month 12: Empoyer PAYE reference NICs paid are: Director s NICs Company s NICs NIC Earnings Director s Company s Tota For empoyers use Tax Year to 5 Apri 2 0 tabe NICs NICs NICs etter ( 1, ,33705) ( 1, ,55584) Empoyees private address (if known) A Empoyees 17,138 detais Copy 1,33705 from P11 1,55584 Date of birth in figures (if known) Nationa Insurance number urname First two forenames Works/payro no etc Nationa Insurance contributions in this empoyment NIC tabe etter Earnings at the LEL (where earnings are equa to or exceed Date of starting Day if during tax year to 5 Apri 2008 Date of eaving if during tax year to 5 Apri 2008 For officia use Month Year Earnings above the LEL, up to and incuding the ET Day Month Year Earnings above the ET, up to and incuding the UEL In previous empoyment(s) In this empoyment Tota for year ex Empoyees Widows & Orphans/Life Assurance contributions in this empoyment M mae, F femae the LEL)(whoe s ony) (whoe s ony) (whoe s ony) Tota of empoyees and empoyers contributions enter R here Empoyees contributions due on a earnings above the ET From co1a on P11 From co1b on P11 From co1c on P11 From co1d on P11 From co1e on P11 1a 1b 1c 1d 1e A Pay and Income Tax detais Pay (te: LEL = Lower Earnings Limit, ET = Earnings Threshod, UEL = Upper Earnings Limit) tatutory payments incuded in the pay In this empoyment figure beow tatutory ick Pay (P) tatutory Maternity Pay (MP) tatutory Paternity Pay (PP) 1f 1g 1h D D M M Y Y Y Y D D M M Y Y Y Y D D M M Y Y Y Y Mr Armstrong s form P14 woud show: If amount in co1d is a minus amount, Tax deducted HMRC 11/06 To HM Revenue & Customs Nationa Insurance copy P14(Manu tatutory Adoption Pay (AP) 1i Fina tax code Enter R in this box if net refund Expenses p benefits pa directors a Compete fo if appropria a copy of th to your emp ee booket Further Guid NICs for mo cheme Contra (For Contracted schemes OR Co Purchase takeh schemes ony) tudent Loan in this empoym From co1j on P Payment in W in Pay and Tax 53, 54 or 56 (ee Empoyer Hepbo 5

8 Exampe for the tax year Mr Morris is in not contracted-out empoyment and receives a reguar monthy saary of 1,058 In addition, he is voted a bonus at the AGM on 4 June 2008 of 10,000 to be paid with his reguar June saary An annua earnings period woud normay appy for the assessment of NICs However, as he is paid monthy, a monthy earnings period can be used to assess NICs during the tax year NICs due Monthy LEL = 390 Monthy ET = 453 Monthy UEL = 3,337 Month 1 Earnings Director s Company s NICs NICs 1, Record the NIC detais on form P11 but do not record in coumns 1a - 1c the earnings on which empoyee s contributions are payabe Month 3 The 10,000 bonus shoud be incuded with the saary of 1,058 Earnings Director s Company s NICs NICs 11, ,35744 Record the NIC detais on form P11 but do not record in coumns 1a - 1c the earnings on which empoyee s contributions are payabe By Month 11 NICs paid are: NIC Earnings Director s Company s Tota tabe NICs NICs NICs etter A 21,638 1, , ,19179 On the fina payment of earnings in the tax year, reassess NICs on the tota earnings by reference to an annua earnings period and adjust the fina remittance to HM Revenue & Customs accordingy Month 12 Earnings: 1,058 Tota earnings from the directorship in the tax year (12 x 1, ,000) = 22,696 e detach sheets and make separate bundes of Nationa Insurance and Tax copies before despatch 6 Based on an annua earnings period, NICs due on 22,696 are: For NIC hep to fi Earnings this form, Director s Pease Company s use back ink and Tota write firmy to ensure your entries are cear see Empoyer Hepbook E10 on a three sheets spaces shoud be fied from the right-hand side P14 End of Year ummary 2007 tabe NICs NICs NICs Your name and address as empoyer etter A 22,696 1, , ,10812 Empoyees detais Nationa Insurance number urname First two forenames Works/payro no etc NIC tabe etter Date of starting if during tax year to 5 Apri 2008 Earnings at the LEL (where earnings are equa to or exceed Day Month Year Earnings above the LEL, up to and incuding the ET HM Revenue & Customs office name For empoyers use Date of birth in figures (if known) Day Month Year ex M mae, D D M M Y Y Y Y F femae Earnings above the ET, up to and incuding the UEL In previous empoyment(s) Empoyees private address (if known) the LEL)(whoe s ony) (whoe s ony) (whoe s ony) Tota of empoyees and empoyers contributions enter R here Empoyees contributions due on a earnings above the ET From co1a on P11 From co1b on P11 From co1c on P11 From co1d on P11 From co1e on P11 1a 1b 1c 1d 1e Tax deducted Empoyer PAYE reference Tax Year to 5 Apri A Copy from P11 Nationa Insurance contributions in this empoyment Pay and Income Tax detais Pay (te: LEL = Lower Earnings Limit, ET = Earnings Threshod, UEL = Upper Earnings Limit) tatutory payments incuded in the pay In this empoyment figure beow tatutory ick Pay (P) tatutory Maternity Pay (MP) tatutory Paternity Pay (PP) 1f 1g 1h D D M M Y Y Y Y Mr Morris s form P14 woud show: In month 12 on form P11, you must record the tota earnings in coumns 1a - 1c and NICs figures for the year foowing the reassessment (not what fas to be due just for month 12) Record these figures on End of Year ummary form P14 NICs payabe in month 12: Director s NICs If amount in co1d is a minus amount, Company s NICs ( 1, ,05995) ( 2, ,13184) tatutory Adoption Pay (AP) 1i Enter R in this box if net refund Expense benefits director Compet if approp a copy o to your e ee book Further G NICs for cheme Co (For Contrac schemes OR Purchase t schemes on 2 tudent Lo in this emp From co1j

9 8 What to do if the director receives a bonus or the category of contribution payabe changes during the year In many cases, directors wi receive a bonus during the year Waiting unti the fina payment of earnings to carry out the reassessment coud ead to a disproportionate amount of primary NICs being payabe at the year end imiary, directors changing from not contracted-out to contracted-out empoyment, for exampe, during the year may mean that any refund of NICs due wi not be paid unti the reassessment takes pace at the end of the year In these circumstances, you can, if you wish, carry out the reassessment at the time of the change However, you must then continue to use the appropriate annua, or pro-rata annua, earnings period rues, as described in this manua, for the rest of that tax year 9 Quaifying conditions for the aternative arrangements You wi be abe to take advantage of this arrangement if the director agrees to NICs being assessed in this way, and the director normay receives his earnings in a payment pattern for which a reguar earnings period can be estabished for the assessment of NICs, and those payments normay exceed the LEL for the pay period concerned 7

10 Appying the annua (or pro-rata annua) earnings period rues 10 Earnings imits and Earnings Threshod Both the company and the director are iabe for Cass 1, that is, empoyed-earners, NICs when the director s tota earnings reach the Lower Earnings Limit (LEL) But the director and the company ony pay NICs if the director s tota earnings exceed the Earnings Threshod (ET) If the director s tota earnings reach or exceed the Upper Earnings Limit (UEL), the director pays NICs ony at a rate of 1% on any earnings which exceed the UEL The company pays NICs at the appropriate contracted-out or not contracted-out percentage rate on a earnings above the ET, incuding those which exceed the UEL The annua earnings imits and threshod are the same as for other empoyees and are in the Nationa Insurance Contributions Tabes CA37 - CA43 11 Lower Earnings Limit If the director has an annua earnings period, do not record the earnings detais for NICs purposes unti the director s tota earnings for the tax year reach or exceed the annua LEL a pro-rata annua earnings period, do not record the earnings detais for NICs purposes unti the tota earnings paid to the director since the date of appointment reach or exceed the pro-rata annua LEL ee paragraph 24 page 9 for detais of how to work out pro-rata annua earnings imits and threshod 12 Earnings Threshod If the director has an annua earnings period, no NICs are due from the director and the company unti the director s tota earnings for the tax year exceed the annua ET a pro-rata annua earnings period, no NICs are due from the director and the company unti the tota earnings paid to the director since the date of appointment exceed the pro-rata annua ET ee paragraph 24 page 9 for detais of how to work out pro-rata annua earnings imits and threshod 14 Upper Earnings Limit The director pays NICs on a earnings above the ET up to and incuding the empoyee s annua or pro-rata annua UEL, but ony at a rate of 1% on those earnings which exceed the UEL The company pays NICs at the appropriate contracted-out or not contracted-out percentage rate on a earnings above the ET, up to and incuding the UEL, then at the not-contracted percentage rate on those earnings which exceed the UEL ee paragraph 24 page 9 for detais of how to work out pro-rata annua earnings imits and threshod 15 Nationa Insurance contribution rates The percentage rates you use to cacuate director s NICs depend on a number of factors The director s NICs, if any, depend on the director s age whether the director has a married woman s or widow s eection whether the director is a member of the company s contracted-out occupationa pension scheme The company s NICs depend if the director is a member of the company s contracted-out occupationa pension scheme The NIC rates are the same as for other empoyees and are in the Nationa Insurance Contributions Tabes CA37 - CA43 16 Directors paying standard rate NICs If the director pays NICs at the standard rate, the director s NICs are paid at a singe percentage rate on a earnings above the annua, or pro-rata annua, ET up to and incuding the annua, or pro-rata annua, UEL, then at a rate of 1% on those earnings which exceed the UEL The percentage rate due on the earnings between the ET and UEL depends if the director s empoyment is not contracted-out contracted-out 13 When tota earnings exceed Earnings Threshod When the tota earnings in the tax year or pro-rata period exceed the ET, the director and the company pay NICs on those earnings which exceed the ET 8

11 17 Directors paying reduced rate NICs If the director is a married woman or widow who is entited to pay reduced rate NICs and wishes to continue paying at a reduced rate, she pays NICs at the reduced rate on a earnings above the annua, or pro-rata annua, ET up to and incuding the annua, or pro-rata annua, UEL But she sti pays at a rate of 1% on these earnings which exceed the UEL You must hod a vaid form CA4139 or form CF383, Certificate of Eection, or form CF380A, Certificate of Reduced Liabiity, for these directors 18 Directors over pension age If earnings are paid or are due to be paid on or after pension age, currenty 60 for women and 65 for men, the director pays no NICs You must hod a vaid CA4140 or form CF384, Certificate of Age Exception, for these directors or have seen the birth certificate or passport to confirm that the director has actuay reached pension age 19 Company s NICs The percentage which you use to cacuate the company s NICs depends if the director s empoyment is not contracted-out, that is, the director beongs to the tate econd Pension, previousy known as the tate Earnings Reated Pension cheme (ERP) or has an Appropriate Persona Pension or Appropriate Persona Pension takehoder Pension, or contracted-out, that is, the director beongs to the company s Contracted-out aary Reated or Contracted-out Money Purchase or Contracted-out Money Purchase takehoder Pension cheme If the director pays reduced rate NICs, the company pays NICs as norma at the appropriate not contracted-out or contracted-out rate(s) If the director is over pension age, the company pays NICs at the appropriate not contracted-out percentage rate even if the director was contracted-out before pension age 20 Earnings periods The interva at which empoyees are paid is usuay the earnings period but directors are different Even if the directors are paid weeky or monthy, their earnings period is annua, or pro-rata annua 21 Annua earnings period A person who is a director at the beginning of the tax year, 6 Apri, has an annua earnings period for that tax year even if they cease to be a director before the tax year ends, 5 Apri The annua earnings period runs from 6 Apri to 5 Apri 22 Pro-rata annua earnings period Directors first appointed during the tax year have a pro-rata annua earnings period for the remainder of that tax year You need to work out the number of weeks in the pro-rata period pro-rata annua LEL pro-rata annua ET pro-rata annua UEL ee the Quick Guide to pro-rata annua earnings periods on page Number of weeks in the pro-rata annua earnings period The number of weeks in the pro-rata annua earnings period is the tax week of appointment, and the remaining tax weeks in the tax year There are 53 weeks in the tax year, but use 52 weeks when working out the pro-rata period Ignore 5 Apri, or 4 and 5 Apri in a eap year, which is week 53 But if someone is appointed in week 53, the pro-rata period is 1 week ee the Quick Guide to pro-rata annua earnings periods on page Working out the pro-rata imits and Earnings Threshod To work out the LEL, mutipy the weeky LEL by the number of tax weeks in the pro-rata earnings period ET, divide the annua ET by 52, mutipy the answer by the number of tax weeks in the pro-rata earnings period and round up to the next whoe pound UEL, mutipy the weeky UEL by the number of tax weeks in the pro-rata earnings period ee the Quick Guide to pro-rata annua earnings periods on page 40 9

12 25 Director resigns during tax year If a director resigns during the tax year, the earnings period does not change 26 Director resigns and is re-appointed If the director resigns during the tax year and is re-appointed by the same company in the same tax year, the earnings period is the one which appied before resignation at the beginning of a ater tax year, the earnings period is annua for the ater tax year during a ater tax year, the earnings period is pro-rata annua for the ater tax year 10

13 Directors earnings 27 What is incuded CWG2 Empoyer Further Guide to PAYE and NICs gives detais of what is and what is not incuded in gross pay when cacuating NICs Leafet CWG5 Cass 1A NICs on benefits in kind gives detais of what taxabe benefits in kind attract Cass 1A NICs The same rues appy to directors as for other empoyees but there are some additiona rues for directors 28 Fees and bonuses rmay, when fees and bonuses are voted to directors, the fees or bonuses are added to a other earnings paid in the annua, or pro-rata annua, earnings period and NICs are assessed on the tota The NIC rates used are normay those which reate to the earnings period But there are exceptions to this rue 29 Advance or anticipatory payments Payments made in advance or in anticipation of the voting of fees, or bonuses are earnings for NIC purposes NICs are due when the payments exceed the annua or pro-rata annua ET which appies when they are made Use the NIC rates which reate to that earnings period NICs paid on advance or anticipatory payments and fees or bonuses are ater voted If NICs have been paid on advance or anticipatory payments and fees or bonuses are ater voted, NICs are due on the fees or bonuses minus the advance or anticipatory payments aready made Use the NIC rates and the earnings period which reate to when the voting takes pace NICs not paid on advance or anticipatory payments and fees or bonuses are ater voted If NICs have not been paid on advance or anticipatory payments because they were, in tota, ess than the ET and fees or bonuses are ater voted, NICs are due on the fu amount of the fees or bonuses which exceeds the annua or pro-rata annua ET which appies when the voting takes pace Use the NIC rates which reate to that earnings period Fees or bonuses waived or refunded If the fees or bonuses are waived or refunded to the company, in tota or in part, after they have been voted, NICs are sti due on the advance or anticipatory payments any baance of the fees or bonuses Director has an account with the company If the director has an account, for exampe, oan or current, with the company, NICs are due when fees or bonuses are voted and the account credited Use the NIC rates and the earnings period which appy when the voting takes pace not due when the director draws money out of the account if the account remains in credit Director s account is overdrawn If the director draws money out of the account and it becomes overdrawn, or there is an increase in the amount by which it is overdrawn, there is iabiity for NICs on the overdrawn amount, or the increase in the overdrawn amount, if the withdrawa is made in anticipation of an earnings payment, for exampe, fees or bonuses Use the NIC rates and the earnings period which appy when the withdrawa is made no iabiity for NICs on the overdrawn amount, or the increase in the overdrawn amount, if the withdrawa is made in anticipation of an introduction of funds which are not earnings, for exampe, dividends, matured insurance poicies or other persona income But there coud be a iabiity for Cass 1A NICs ee CWG5 Cass A NICs on benefits in kind Payment of a director s persona bis through an account with the company Directors who have an account with their company may arrange for the company to sette their persona bis and then charge the amount to their account If you meet a director s persona debt in this way and then debit the amount to the account, there is iabiity for NICs when the account becomes overdrawn or there is an increase in the amount by which it is overdrawn, and the debiting is made in anticipation of an earnings payment, for exampe, fees or bonuses Fees or bonuses are ess than the advance or anticipatory payments If the fees or bonuses are ess than the advance or anticipatory payments, no further NICs are due 11

14 NICs are due on the overdrawn amount, or the increase in the overdrawn amount Use the NIC rates and the earnings period which appy when the account is debited There is no iabiity for NICs if the account becomes overdrawn or there is an increase in the amount by which it is overdrawn, and the debit is made in anticipation of an introduction of funds which are not earnings, for exampe dividends, matured insurance poicies or other persona income 30 advance or anticipatory payments If the director draws money out of the account and it becomes overdrawn or there is an increase in the amount by which it is overdrawn and the director does not normay receive advance or anticipatory payments, the amount overdrawn is not earnings uness the company authorises payment of the amount(s) overdrawn The amount overdrawn can be authorised in writing, or by the other directors agreeing verbay that they know about the situation When the amount(s) overdrawn are propery authorised, NICs are due on the overdrawn amount(s) Use the NIC rates and the earnings period which appy when the authority is given Fees voted for a future period If fees are voted for a future period, NICs are due if the payments exceed the annua, or pro-rata annua, earnings threshod which appies when the fees are actuay made avaiabe to the director 32 Earnings paid for a period before appointment Earnings paid to a person before the date on which he or she was appointed as a director, which reate, for exampe, to when they were empoyees of your company, are not incuded with the earnings paid after that date when the director s NICs are assessed Earnings paid to a person after the date on which he or she was appointed as a director, which reate, for exampe, to when they were empoyees of your company, are incuded with the other earnings paid after that date when the director s NICs are assessed Use the director s earnings period, annua or pro-rata annua 33 Earnings paid in same tax year after appointment ends If earnings for the directorship are paid to a former director in the same tax year as their appointment ends add these earnings to the tota earnings aready paid cacuate NICs on the tota earnings using the director s earnings period This appies even if the director becomes an empoyee of the company For the rest of the tax year any earnings paid, incuding those paid as an empoyee, shoud be assessed for NICs using the annua or, if the director was appointed after the beginning of the tax year, the pro-rata annua earnings period If the former director was in contracted-out empoyment and the payment of earnings is made more than six weeks after the appointment ends, work out NICs using the equivaent not contracted-out rate ee Change in category of contribution payabe, paragraph 58 page 23 onwards Use the NIC rates which reate to that earnings period 31 Payments under the Empoyment Rights Act 1996 (in rthern Ireand, Empoyment Rights (rthern Ireand) Order 1996) If the director receives payments under the Empoyment Rights Act 1996 add these payments to the director s other earnings for the tax year in which the payment is made use the percentage rates and earnings imits which appy at the time of payment 12

15 34 Earnings paid in a ater tax year after appointment ends If earnings for the directorship are paid to a former director in a tax year which starts after their appointment ends do not add these earnings to any other earnings paid in that tax year cacuate NICs using an annua earnings period use the percentage rates and earnings imits in force for the tax year in which the payment is made If the former director is working as an empoyee, separatey cacuate the NICs due on their earnings as an empoyee using the appropriate earnings period If the former director was in contracted-out empoyment and the payment of earnings is made more than six weeks after the appointment ends, work out NICs using the equivaent not contracted-out rate ee Change in category of contribution payabe, paragraph 58 page 23 onwards 35 Repayment of oans If a director ends money to the company any repayment of that oan is not earnings for NIC purposes NICs are not due on the repayments 36 Company pensions If a director receives a company pension the pension is not earnings for NIC purposes NICs are not due on the pension payments NICs are due on any fees or bonuses or saary payments which are paid after the director has retired from the company If the director is over pension age no director s NICs are due NICs are due from the company at the not contracted-out rate 13

16 Cacuating NICs 37 Introduction Directors NICs are cacuated on a cumuative basis unike other empoyees whose NICs are cacuated each week or each month NICs must, therefore, be cacuated each time a payment of earnings is made to a director To work out how much you must pay cacuate the NICs on the tota earnings paid to date in the tax year, or pro-rata period deduct the NICs aready paid, if any This gives the NICs now due 38 Methods of cacuating NICs You can cacuate NICs using the exact percentage method, or by adapting the NIC tabes You can ony use one of these methods for a director in a tax year, or pro-rata period 39 Exact percentage method If you use the exact percentage method to cacuate directors NICs, wait unti the tota earnings to date reach or exceed the annua, or pro-rata annua, LEL To work out a director s standard rate NICs, mutipy those earnings which exceed the annua, or pro-rata annua, ET, up to and incuding the annua, or pro-rata annua, UEL by the appropriate not contracted-out or contracted-out percentage rate Round to the nearest penny, rounding down exact amounts of 05p Deduct any empoyee s contracted-out NIC rebate to which the director is entited Mutipy those earnings which exceed the annua, or pro-rata annua, UEL by 1% Round to the nearest penny, rounding down exact amounts of 05p Add the totas together This gives the NICs now due To work out how much you must pay if further payments of earnings are made in the tax year, or prorata period cacuate the NICs due on the tota earnings to date Round to the nearest penny, rounding down exact amounts of 05p deduct the amount of NICs aready paid This gives the NICs now due 40 Adapting the NIC tabes You can adapt the NIC tabes to cacuate NICs You must not use the NIC tabes at face vaue because the figures shown reate to weeky or monthy earnings periods 41 Adapting the monthy tabes If the director has an annua earnings period, you can adapt the monthy tabes to work out the NICs due each time earnings, incuding fees and bonuses, are paid Divide the tota earnings to date by 12 This gives the average monthy earnings to date Look at the reevant monthy tabe for the average monthy earnings If the average monthy earnings are - ess than or equa to the monthy ET, no NICs are due - more than the monthy ET, mutipy the NICs in the tabe by 12 This gives the NICs due to date Deduct NICs aready paid, if any This gives the NICs now payabe This gives the NICs now due To work out a director s reduced rate NICs, mutipy those earnings which exceed the annua, or pro-rata annua, ET, up to and incuding the annua, or pro-rata annua, UEL by the reduced percentage rate Round to the nearest penny, rounding down exact amounts of 05p Mutipy those earnings which exceed the annua, or pro-rata annua, UEL by 1% Round to the nearest penny, rounding down exact amounts of 05p Add the totas together This gives the NICs now due To work out the company s NICs, mutipy those earnings which exceed the ET by the appropriate not contracted-out or contracted-out percentage rate Round to the nearest penny, rounding down exact amounts of 05p Deduct any empoyer s and, if appropriate, any empoyee s contracted-out NIC rebate to which the company is entited 14

17 42 Adapting the weeky tabes, annua earnings period If the director has an annua earnings period, you can adapt the weeky tabes instead of the monthy tabes, but divide the tota earnings by 52, not 12 cacuate NICs on the average weeky earnings mutipy the weeky NICs by 52, not Adapting the weeky tabes, pro-rata annua earnings period If the director has a pro-rata annua earnings period, you can adapt the weeky tabes to work out the NICs due each time earnings, incuding fees and bonuses, are paid Work out the tota number of tax weeks in the pro-rata annua earnings period Divide the tota earnings paid to the director since the appointment began by the number of tax weeks in the pro-rata annua earnings period This gives the average weeky earnings to date Look at the reevant weeky tabe for the average weeky earnings If the average weeky earnings are - ess than or equa to the weeky ET, no NICs are due - more than the weeky ET, mutipy the NICs on the tabe by the number of tax weeks in the pro-rata period This gives the NICs due to date deduct any NICs aready paid This gives the NICs now payabe 15

18 Paying NICs on account 44 Introduction As directors have an annua or pro-rata annua earnings period, NICs wi ony become due from the director and the company when the tota earnings exceed the ET You can, if you wish, pay NICs on account before the tota earnings reach the annua, or pro-rata annua, ET but you need the director s agreement to do this 45 Paying the director s and company s NICs on account If you expect the director s earnings to exceed the ET and the director agrees, you can pay NICs before the tota earnings exceed the annua, or pro-rata annua, ET Cacuate the director s and the company s NICs at the appropriate percentage rates 46 What to do when NICs have been paid on account If NICs have been paid on account as in paragraph 45 (see above) pay those NICs to your Accounts Office in the norma way do not record the earnings detais in coumns 1a - 1c of form P11 unti the actua earnings exceed the ET 47 What to do if earnings do not reach expected eve If the tota earnings do not reach the ET, see paragraph 63 page 32 16

19 More than one job 48 Introduction CWG2 ee Empoyer Further Guide to PAYE and NICs for the basic rues if the director has more than one job with entirey different empoyers is both empoyed and sef-empoyed wants to know more about refunds of NICs paid in excess of the prescribed annua maximum wants to know about deferment of payment of Cass 1 or Cass 2 and 4 NICs This section describes the additiona rues for directors 49 More than one job with the same company If the director is aso an empoyee of your company add a the earnings together cacuate NICs on the tota earnings using the director s earnings period compete one form P11 and one form P14 If the earnings from each job are separatey cacuated, you do not have to add them together if it is not reasonaby practicabe to do so If this is the case cacuate the NICs separatey use the annua, or pro-rata annua, earnings period for the earnings as a director use the empoyee s earnings period for the earnings as an empoyee compete two forms P11 and two forms P14 50 Companies carrying on business in association Companies are considered to be carrying on business in association with each other if the companies have some degree of common purpose substantiated by the sharing of things such as faciities, personne, accommodation, customers, etc If two or more companies are carrying on business in association with each other add a the earnings together cacuate NICs on the tota earnings using the onger, or ongest earnings period, that is, the pro-rata or annua earnings period compete one form P11 and one form P14 But see paragraph 53 page 18 if any of the jobs are contracted-out If the earnings cannot be added together because the earnings are paid through different pay points cacuate the NICs separatey use the appropriate earnings period for each job compete separate forms P11 and P14 for each job 51 inge service contracts Directors may be appointed to a group of companies under a singe service contract, or singe service agreement This usuay means that the directors of the parent company are aso directors of one, or more of the subsidiary companies They are engaged under a singe contract of service to perform duties for each of the companies as requested If one payment of earnings is made for a the duties, usuay the parent company pays the NICs competes one form P11 and one form P14 If earnings are paid by more than one of the companies, the companies invoved must decide which company wi add a the earnings together cacuate NICs on the tota earnings using the onger, or ongest earnings period; that is, the pro-rata or annua earnings period compete one form P11 and one form P14 But see paragraph 53 page 18 if any of the jobs are contracted-out If the earnings cannot be added together because the earnings are paid through different pay points cacuate the NICs separatey use the appropriate earnings period for each job compete separate forms P11 and forms P14 for each job hare the company s NICs due, as agreed between yourseves If there is no agreement, share them in the same proportion as the earnings paid by each company 17

20 52 One payment of earnings covering more than one job Consider first if the companies are carrying on business in association with each other when a director gets paid by ony one company but is a director of more than one company, or one company and an empoyee of another company If the companies are carrying on business in association with each other, the company which pays the earnings pays the NICs competes one form P11 and one form P14 But see paragraph 53 if any of the jobs are contracted-out If the companies are not carrying on business in association with each other spit or apportion the singe payment of earnings into the payment due for each job and any of the separate payments reach or exceed the appropriate LEL for the earnings period for that job, record the earnings detais and if the payments exceed the ET, cacuate NICs on them compete a separate form P11 for each job At the end of the tax year, put X in the NIC tabe etter box on any forms P11 and P14 when the payment for the tax year does not reach the LEL the appropriate NIC tabe etter in the NIC tabe etter boxes on any other forms P11 and P14 53 Earnings from contracted-out and not contracted-out jobs added together If earnings from more than one job are added together, or apportioned, use the onger or ongest earnings period The order in which to cacuate reduced rate NICs is first on earnings on which NICs are payabe under tabe etter G if the director beongs to the company s Contracted-out Money Purchase cheme or Contracted-out Money Purchase takehoder Pension cheme then on earnings on which NICs are payabe under tabe etter E if the director beongs to the company s Contracted-out aary Reated cheme finay on earnings on which NICs are payabe under tabe etter B if the director is in a not contracted-out empoyment The order in which to cacuate standard rate NICs is first on earnings on which NICs are payabe under tabe etter A if the director has an Appropriate Persona Pension or Appropriate Persona Pension takehoder Pension then on earnings on which NICs are payabe under tabe etter F if the director beongs to the company s Contracted-out Money Purchase cheme or Contracted-out Money Purchase takehoder Pension cheme then on earnings on which NICs are payabe under tabe etter D if the director beongs to the company s Contracted-out aary Reated scheme finay on earnings on which NICs are payabe under tabe etter A if the director does not have an Appropriate Persona Pension or Appropriate Persona Pension takehoder Pension For more information, see CWG2 ee Empoyer Further Guide to PAYE and NICs under Empoyees with more than one job 18

21 Exampe for the tax year Three companies, Asorts Ltd, ortsa Ltd and Rotsas Ltd, carry on business in association with each other Mrs Troass has been 1 a director of Asorts Ltd, a job with a Contracted-out Money Purchase cheme, since 15 August 1986 he receives a monthy saary of from this job 2 a director of ortsa Ltd, a not contracted-out, no Appropriate Persona Pension, job since 18 May 1989 he receives fees of 26,290 from this job on 31 March 2009, but draws a reguar weeky wage of 120 from the company Annua LEL = 4,680 Annua ET = 5,435 Annua UEL = 40,040 3 a part-time empoyee of Rotsas Ltd, a contracted-out job, same scheme as Asorts, since 15 August 1986 he receives a monthy saary of 150 Pease detach sheets and make separate bundes of Nationa Insurance and Tax copies before despatch Priority shoud be given to the tota category F earnings of 8,790, then to the tota category A earnings of 32,530, as foows NIC Earnings Director s Company s tabe NICs NICs etter F 4,680 (earnings up to LEL) NIL NIL 755 (baance of 0% between LEL and ET) = NIL = NIL 3,355 (baance of 114% between ET and UEL) = = Less rebates on 14% For hep to fi in this form, Pease use back ink and write firmy to ensure your = entries 1208 are cear = 1057 see Empoyer Hepbook E10 on a three sheets spaces shoud be fied from the right-hand side P14 End of Year ummary Your name and address as empoyer HM Revenue & Customs office name Empoyer PAYE reference Tota category F NICs payabe = = A 31,250 (baance of earnings For empoyers 128% up to UEL) = 3,43750 = 4, Empoyees detais Nationa Insurance number urname First two forenames Works/payro no etc NIC tabe etter Earnings at the LEL (where earnings are equa to or exceed Date of starting Day if during tax year to 5 Apri 2008 Date of eaving if during tax year to 5 Apri 2008 For officia use Month Year Earnings above the LEL, up to and incuding the ET Empoyees private address (if known) 1,280 (earnings Date of birth over in figures UEL) (if 128% Day Month Year ex = 1280 = D D M M Y Y Y Y Earnings above the ET, up to and incuding the UEL In previous empoyment(s) In this empoyment Tota for year M mae, F femae the LEL)(whoe s ony) (whoe s ony) (whoe s ony) Tota of empoyees and empoyers contributions enter R here Empoyees contributions due on a earnings above the ET From co1a on P11 From co1b on P11 From co1c on P11 From co1d on P11 From co1e on P11 1a 1b 1c 1d 1e Tax deducted Tax Year to 5 Apri F A Copy from P11 Nationa Insurance contributions in this empoyment Pay and Income Tax detais Pay (te: LEL = Lower Earnings Limit, ET = Earnings Threshod, UEL = Upper Earnings Limit) tatutory payments incuded in the pay In this empoyment figure beow tatutory ick Pay (P) tatutory Maternity Pay (MP) tatutory Paternity Pay (PP) 1f 1g 1h D D M M Y Y Y Y D D M M Y Y Y Y Mr Troass s form P14 woud show: If amount in co1d is a minus amount, tatutory Adoption Pay (AP) 1i Enter R in this box if net refund 19 Expenses paym benefits paid directors and Compete form if appropriate a a copy of the in to your empoy ee booket CW Further Guide t NICs for more d cheme Contracte (For Contracted-out schemes OR Contra Purchase takehod schemes ony) tudent Loan De in this empoyment From co1j on P11 Payment in Wee

22 54 Professiona advisers ome directors have more than one job because they are partners in firms carrying on a profession, for exampe accountancy aso directors of Limited Companies providing a service to that company Payments made for the service to the Limited Company are not incuded in the director s earnings if the nature of the payment satisfies certain tests, see The tests beow, and the nature of the work satisfies certain conditions, see The conditions outined beow The tests To be excuded from the director s earnings, the payment must be a payment by a company to or for the benefit of a director of that company, and for Cass 1, that is, empoyed-earners, empoyment of that director with that company The conditions To be excuded from the director s earnings, a these conditions must be satisfied The director must aso be a partner in a firm carrying on a profession Being a director of a company must be a common practice of membership of that profession and of that firm Under the terms of the partnership, the director must account to the firm for the payment The payment must form an insubstantia part of the gross returns of the firm 55 HM Revenue & Customs Extra tatutory Concession (EC) A37 Aternativey, if HM Revenue & Customs have appied EC A37 to certain payments for income tax purposes, those payments can aso be excuded from earnings for the purposes of assessing the director s Cass 1 NICs 56 minee directors ome directors have more than one job because they are nominated to serve on the boards of other companies as nominee directors Payments made by the companies empoying nominee directors are not incuded in directors earnings if the nature of the payment satisfies certain tests, see The nature of payment tests beow, and one of two sets of conditions are satisfied, see et of conditions 1 or et of conditions 2 on the next page In the sets of conditions Company 1 is the company which makes the nomination Company 2 is the company to which the director is appointed as a nominee The nature of payment tests To be excuded from the director s earnings for NIC purposes, the payment must be a payment by a company to or for the benefit of a director of that company, and for Cass 1, that is, empoyed-earners, empoyment of that director with that company 20