Why Directors Are Different
An ordinary employee's National Insurance is worked out on each pay day separately. That would let a director, who controls when they are paid, take one large payment a year and pay almost nothing above the upper earnings limit. So directors have an annual earnings period: their NI is assessed on cumulative earnings for the tax year.
Annual Thresholds 2026/27
| Threshold | Annual amount | What happens above it |
|---|---|---|
| Secondary Threshold | £5,000 | Employer NI at 15% |
| Primary Threshold | £12,570 | Employee NI at 8% |
| Upper Earnings Limit | £50,270 | Employee NI falls to 2% |
How the Annual Method Works
Each time the director is paid:
- Add this payment to the director's earnings so far this tax year.
- Work out the NI due on that cumulative total against the annual thresholds.
- Subtract the NI already paid this year. The difference is this period's NI.
The effect is that a director pays no employee NI at all until cumulative earnings pass £12,570, then 8% on everything until they pass £50,270. A director on £5,000 a month pays nothing in April and May, and starts paying in June.
Example
| Month | Pay | Cumulative pay | Employee NI this month |
|---|---|---|---|
| April | £5,000 | £5,000 | £0.00 |
| May | £5,000 | £10,000 | £0.00 |
| June | £5,000 | £15,000 | £194.40 |
| July | £5,000 | £20,000 | £400.00 |
June's figure is 8% of the £2,430 by which £15,000 exceeds £12,570.
Work out any payment with the directors' NI calculator.
The Alternative Method
HMRC also allows a director who is paid regularly to have NI deducted period by period like an employee, with a recalculation on the annual basis in the last pay period of the year. The total for the year is the same either way. The alternative method spreads the deductions evenly; the annual method takes nothing early in the year and more later.
Appointed Part Way Through the Year
A director appointed during the tax year has an earnings period running from the week of appointment to the end of the year. Two things follow.
- The thresholds are pro-rated by the number of tax weeks remaining, counting the week of appointment. Someone appointed on 1 July 2026 is appointed in tax week 13, leaving 40 weeks: the Primary Threshold for that director is £12,570 multiplied by 40 and divided by 52, about £9,670.
- Only pay from the week of appointment counts. What they were paid as an employee earlier in the year was assessed when it was paid, on the ordinary basis, and stays that way. It is not added to the director's cumulative earnings.
The second point is easy to get wrong. Adding the whole year's pay to the director's total, against thresholds reduced for a part year, overstates the NI due and then refunds what was correctly paid before the appointment.
When a Directorship Ends
A person who stops being a director during a tax year keeps the annual earnings period until the end of that tax year, whether or not they stay on as an employee. They return to the ordinary basis from the following 6 April.
What the FPS Reports
- A marker that the payment's NI was calculated on the director's basis, and which method was used
- For a director appointed during the year, the tax week of appointment
Common Mistakes
- Not flagging a director at all. The period-by-period result looks plausible but under-collects for an irregularly paid director.
- No appointment date. Without it the software treats the person as a director for the whole year, with full annual thresholds.
- Changing the appointment date after payments have been made. The year's earnings period has already been set by those payments.
- Sole director, no other staff, claiming Employment Allowance. A company whose only employee paid above the Secondary Threshold is its one director cannot claim it.