The new tax year 2016-2017 has brought some changes in regards to how the National Insurance Contributions are paid by company directors as well as a change in how a company qualifies for the Employment Allowance.
1.Up until 6.04.16, a company director was obliged to pay the NICs only in relation to their EMPLOYEE duties, whereas they were excluded from paying the NICs in relation to their EMPLOYER duties. This has now changed and should only the company director be employed by the company (with no other employees), as a result this director is no obliged to pay BOTH the EMPLOYER and EMPLOYEE NICs.
2.The frequency that the NICs are payable by the company director is changing as well. Instead of paying the NICs every week or every month, they are now obliged to pay them only once a year, at the end of each tax year.
Below you will find four possible scenarios portraying this change:
1.A company that only employs its director: since 6.04.16, the company is not eligible for EA. The director is obliged to pay BOTH the EMPLOYER and EMPLOYEE NICs and they pay them only once a year, at the end of each tax year.
2.A company that employs its director and other employees, who earn less than £672 p/m – EA is not generated and therefore is payable.
3.A company that employs its director and other employees, who earn more than £672 p/m – EA is generated. The director incurs the same rights as an employee and therefore the EA is awarded for the entire 2016/17 tax year, up to the max. of £3000 for the months 1-12. The director pays the NICs only once a year, at the end of each tax year, whereas the employees pay it just as they used to do it before, every week or every month.
4.A company that employs its director and other employees, who earn more than £672 p/m – EA is generated. IMPORTANT! If the director in question is also a director of any other company or a number of other companies, the EA is payable only in relation to only one company that he is employed in, not each of them.