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National Insurance for limited company directors: A complete guide

November 1, 2022As limited company director, you may be wondering how to go about your National Insurance contributions (NICs). You’re likely to have some questions such as, what exactly National Insurance contributions are, how you work out how much you owe, and when and how should you pay them.In this guide, we’ll be taking you through those common questions, to give you a thorough understanding of National Insurance contributions.

What are National Insurance contributions?

National Insurance contributions (NIC), are deductions from the annual earnings of employers and employees in the UK. They are used to fund the National Health Service (NHS), state pensions and unemployment benefits.

How much do company directors pay as National Insurance contributions?

The amount you'll need pay as a company director is determined by 2 factors:

The National Insurance class that you are inYour annual earnings

Finding out your National Insurance class is pretty straightforward, but working out exactly how much you owe based on your annual earnings requires a bit more thought. Don’t worry— we’ll take you through all that below.Not too keen on doing the calculating? Check out Ember. Our payroll feature will automatically work out how much you and your employees owe, sending it directly to HM Revenue and Customs (HMRC) when

What National Insurance class are company directors in?

As a company director, you’ll need to pay Class 1 National Insurance contributions. Easy, right?Generally speaking, National Insurance contributions are organised into four classes:The Class 1 National Insurance contributions (NICs) for the 2022/23 tax year are as follows:

Employer NICs

If you’re a limited company director and employ staff, you’ll also need to pay employer-only Class 1A NICs on most taxable benefits and business expenses, such as company cars. The exception to this rule is if a PAYE Settlement Agreement (PSA) is in place, where instead you’d need to pay employer-only Class 1B NICs in the place of a Class 1 or 1A that may otherwise arise.

2022/23 Class 1 NIC rates and annual thresholds

In the table above, you’ll notice there’s a lower earnings limit, a primary and secondary threshold and an upper earnings limit. These annual thresholds dictate the tax rates you’ll need to pay on your earnings and whether you’re entitled to state benefits.The lower earnings limit (LEL) is the minimum amount that an employee must earn to qualify for certain state benefits, such as the state pension. In the 2022/23 tax year, the LEL is £6,396. While anything earned before this amount is tax-free, you won’t qualify for state benefits.The primary threshold is the minimum amount you’ll earn before you’ll need to start paying Class 1 NICs. Earnings above the primary threshold up to and including the upper earnings limit will be taxed at a rate of 13.25%. While this threshold is £12,570 for employees, company directors will start paying primary Class 1 NICs if they’re earning more than £11,908 in the 2022/23 tax year.The secondary threshold is the minimum amount an employee can earn before you’ll need to pay the standard rate of employer’s National Insurance on these earnings. For 2022/23, the rate is set at 15.05%, with a limit of up to £175 per week.The upper earnings limit is the stage at which anything you make above that amount is taxed at, which for company directors is 3.25% for the 2022/23 tax year.It’s important to make sure you are looking at the most recent rates, as annual rates and thresholds for each class can change at the government’s discretion.For example, at the beginning of the 2022/23 tax year, Class 1 National Insurance payers would pay NICs at a rate of 13.25%, a 1.25% rise from the 12% of 2021/2022 due to the Health and Social Care levy. Note: This is due to change on 6th November 2022, where the 1.25% Health and Social Care levy will be dropped.Based on your director’s salary, you’ll find yourself in one of the following situations:

Case 1: You earn less than the lower earnings limit of £6,396 per year. As a result, you won’t have to pay Class 1 NICs, but you won’t qualify for state benefits.Case 2: You earn more than the lower earnings limit of £6,396 per year, but less than the primary threshold of £11,908. While you won’t have to pay NICs, you may be eligible for National Insurance credits.Case 3: If you earn more than the primary threshold of £11,908 but less than the upper earnings limit of £50,270, you’ll pay at a rate of 13.25%.Case 4: If you earn more than the upper earnings limit of £50,270 per year, you’ll have to pay NICs at 13.25% on all 2022/23 earnings up to £50,270 per year. After this amount, you’ll only need to pay 3.25% on their annual earnings.

How to pay your National Insurance contributions

There are two main methods for paying your National Insurance contributions as a company director:

Standard annual earnings period methodAlternative method

The standard annual earnings period method is typically used by company directors who are paid irregularly, whereas the alternative method is more popular with company directors whose earnings are more consistent with each pay run.

Standard annual earnings period method

With this method, you won’t start paying NICs until you’re earning above the primary threshold.This is a cumulative method. In other words, previous earnings are taken into account when working out how much National Insurance you owe for that month.For example, if you earn £8,000 in the first month of the year, you’ll still be below the primary threshold, so won’t owe any NICs. If you earn another £8,000 in the second month, you’ll then be taxed at a rate of 13.25%.

Alternative method

If you choose to adopt the alternative method, you’ll pay a standardised amount a month. At the end of the tax year, as the company director, you’ll then need to make a balancing payment to make up the different if you’ve underpaid your NICs. Alternatively, if you’ve overpaid in NICs, you may be due a tax rebate.Regardless of the method you opt for, the total amount you’ll pay in NICs will still be the same: the only difference is the amount you pay on a monthly basis.

When are my director National Insurance contributions due?

Even though your NICs are based on annual earnings, you’ll need to make each contribution when you run payroll for yourself and your employees at the end of every pay period.