Directors are classed as employees and pay National Insurance on annual income from salary and bonuses over £12,570. Contributions are worked out from their annual earnings rather than from what they earn in each pay period. There are different rules for tax on dividends.
HMRC Directors calculator
HMRC have a Directors calculator you can use for manual calculations, and to check they match Paycircle.
Earning methods
Standard annual earnings period method
This method is common for directors who are paid irregularly.
Each time you pay a director, work out their National Insurance for their total pay over the tax year so far, including bonuses.
To work out what contributions they now owe, take off the total employee National Insurance they’ve paid so far this year.
Alternative method
This method is common for directors who are paid regularly.
Each time you pay a director, work out their National Insurance only on their pay for that period, including bonuses.
At the end of the tax year, use payroll software to work out whether more employee National Insurance is due and deduct it from their last payment.
Onboard a Directors Year to Dates
For onboarding a director, you need to enter YTDs for both Gross for NI and Gross for NI as a director.
Add a Director mid-way through the year
When a Director is added mid-year, you need to check the final NI values as the system does not allow for the YTD splits to be added when onboarded. Therefore you must override this manually. The system will be using the blended % for employees' director NI.
Backdated salary for a Director
Directors' salaries cannot be backdated. You can raise this in our Ideation portal.
If you wish to add this manually, you can use the back pay element. To add back pay using a pay element in Paycircle, follow the steps below.
Click Payroll, then click Current period.
Find the employee and click the actions cog ⚙️ next to their name.
Click Add Change.
Choose an appropriate pay element for back pay (e.g., a custom element or bonus).
Enter the back pay amount.
If it's a one-time payment, leave the recurring toggle off.
Click Save.