New National Insurance Rules for Company Directors

29/05/2021 - 7 minutes read

HMRC have issued new national insurance rules for company directors in their recently published 2021/22 edition of booklet CA44, National Insurance for company directors.

New National Insurance Rules for Company Directors

New National Insurance Rules for Company Directors

Who is a company director?

A director is defined (in reg. 1 of the Social Security (Contributions) Regulations 2001 (SI 2001/1004)) as:

  • – A member of a board or similar body where the company is managed by a board or similar body;
  • – A single person where the company is managed by an individual.

The definition is extended to include a person under whose instructions a director as defined above is accustomed to act, but excludes anyone providing professional advice only when acting in a professional capacity (such as an accountant or a lawyer acting as such).

The need for the new national insurance rules

National insurance contributions are normally calculated by reference to earnings paid only in that particular earnings period, using the thresholds appropriate to that earnings period (ie monthly thresholds for a monthly earnings period, weekly for a weekly earnings period, etc). No account is taken of earnings paid previously in the tax year.

As the liability on each pound of earnings is not the same, the way in which earnings are paid will affect the overall liability.

Directors, particularly of personal and family companies, can determine how their remuneration is paid, making it possible to reduce their overall liability by manipulation of the earnings period rules, moving earnings from the 12% rate to the 2% rate.

Annual earnings period

Unlike other employees for whom the earnings period usually corresponds to the pay interval, the earnings period for a director is an annual one (Social Security (Contributions) Regulations 2001 (SI 2001/1004), reg. 8).

This means that unless the director has opted to apply the alternative arrangements described below, their national insurance liability is calculated on a cumulative basis using the annual thresholds, rather than those appropriate to the pay interval. Where the director is appointed part way through the year, a pro-rata annual earnings threshold applies.

For 2021/22, the annual thresholds are as follows:

 Annual threshold
Lower earnings limit£6,240
Secondary threshold£8,840
Primary threshold£9,568
Upper earnings limit£50,270

The director pays no contributions on the first £9,568 of their earnings in the tax year, contributions are then payable at 12% on all earnings until earnings for the year-to-date reach £50,270, with contributions payable at 2% on any further earnings.

The annual earnings period also applies when working out the secondary contributions payable by the employer, with nothing payable until earnings for the year reach £8,840 and at the rate of 13.8% thereafter.


Stuart is a company director. He is paid a salary of £5,000 throughout 2021/22 and a bonus of £100,000 on 31 August 2021.

In month 1, he pays no employee’s national insurance contributions as his earnings for the year-to-date are less than the primary threshold of £9,568.

In month 2, his earnings for the year-to-date are £10,000 on which primary contributions of £51.84 (12% (£10,000 – £9,568)) are due. As he did not pay any national insurance in month 1, his liability for month 2 is £51.84.

For month 3 and 4 his earnings for the year-to-date fall between the primary threshold and the upper earnings limit. Consequently, he pays national insurance at the rate of 12% on all earnings – a liability of £600 for each month.

As he is paid the £100,000 bonus in month 5 (month to 5 September 2021), at the end of month 5, his earnings for the year to date are £125,000 on which the total liability is £6,378.84 ((12% (£50,270 – £9,568)) + (2% (£125,000 – £50,270))). He has already paid national insurance of £1,251.84, leaving £5,127.03 due for month 5.

For months 6 to 12 inclusive, contributions are payable on all earnings at the rate of 2% as earnings for the year to date have exceeded the upper earnings limit, a liability of £100 a month.

New national insurance rules – Alternative arrangements

As the above example illustrates, using the annual thresholds means that the liability can vary significantly throughout the year.

To overcome this, the director can opt to use the alternative arrangements and elect for contributions to be calculated throughout the year on a non-cumulative basis by reference to the thresholds for the pay interval, as for other employees.

To meet the statutory requirement for an annual earnings period, a recalculation is performed on an annual basis in the last month of the tax year, with any balance owing being deducted from the director’s earnings for that period.


Assuming the facts are as in the example above, but the director has opted for the alternative arrangements, he will pay national insurance of £423.26 a month ((12% (£4,189 – £797)) + (2% (£5,000 – £4,189))) for months 1 to 4 and months 6 to 11, and National Insurance of £2,423.26 ((12% (£4,189 – £797)) + (2% (£105,000 – £4,189))) for month 5.

For month 12, the annual liability is calculated on total earnings for the year of £160,000. This is £7,078.84 ((12% (£50,270 – £9,568)) + (2% (£160,000 – £50,270))). The director has already paid £6,655.86, leaving £422.98 to be deducted from his pay in month 12.

Where this method is used, it is important to check the relevant box in the payroll software when making the final payment in the tax year.

New national insurance rules – Director’s choice

The liability for the year is the same whichever method is used. The director can opt for the one which bests suits their circumstances as per the new national insurance rules.

How can MCL Accountants help?

Contact MCL Accountants on 01702 593 029 to optimise your tax position or if you need any assistance with the preparation and submission of your company accounts or self-assessment tax returns to HMRC.