National Insurance changes
From April 2009 there will be a significant change in the structure of National Insurance contributions with a new band introduced.
| Description | NI Rate | This year | Next year |
| Lower earnings limit | No NI payable | First 90 pw | First 95 pw |
| Earnings threshold ("ET")
|
No NI payable but
earnings recorded | Up to 105 pw | Up to 110 pw |
| Upper accruals point | Full NI Liability | n/a | Up to 770 pw |
| Upper earnings limit ("UEL")
| Full NI Liability | Up to 770 pw | Up to 844 pw |
| Employees rate between
ET and UEL |
| 11% | 11% |
| Employees rate above UEL |
| 1% | 1% |
| Employers rate above ET |
| 12.8% | 12.8% |
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Labels: National Insurance
Directors NI400
There are special rules for directors National Insurance. In practice this only affects the employee contributions, as there is no upper limit on employer contribution, as the table below demonstrates.
| Annual lower threshold | £5,435 |
| Annual upper threshold | £40,040 |
| Employees liability below lower limit | NIL |
| Employees liability between thresholds | 11% |
| Employees liability above upper threshold | 1% |
| Employers liability above lower threshold | 12.8% |
Before the rules were changed in the 1990’s, directors and other higher paid employees could declare their annual salary in one month, reaching the upper limit and limiting the amount of National Insurance they had to pay. The rules are clearly stated at paragraph 5 in the Inland Revenue booklet CA44.
Using the tables shown above, declaring a salary of £120,000 in one month, rather than £10,000 per month would result in an employees NI liability of £4,606.15 rather than £6,025.80.
The current rules require directors to work on a cumulative basis for their period of directorship. There are slightly different rules if you start or cease to be a director during the year.
Using the above example for Month 1:
| Gross salary | £10,000 |
| Lower threshold | £5,435 |
| NI due on | £4,565 |
| Employees NI due at 11% | £502.15 |
In Month 2 the calculation is slightly different:
| Gross salary to date | £20,000 |
| Lower threshold | £5,435 |
| NI due on | £14,565 |
| Employees NI due at 11% | <£1,602.15 |
| Less: Already suffered | £502.15 |
| Due this month | £1,100.00 |
Which is 11% of the gross salary for the month.
By Month 6 the upper limit is passed:
| Gross salary to date | £60,000 |
| Upper threshold | £40,040 |
| NI due on | £19,960 |
| Employees NI due at 1%* | £199.60 |
| Less: Already suffered* | £99.60 |
| Due this month | £100.0 |
(* Plus £40,040-£5,435 @ 11% = £3,806.55)
In Month 6 this is equivalent to 1% of the gross salary for the month.
Showing the NI liability graphically demonstrates that employers and directors pay the same employees NI, but that directors pay it earlier.
Labels: National Insurance
