There are 2 methods for calculating National Insurance (NI) for company directors:
1. The "Standard" method
2. The "Alternate" method
We recommend #2 for all Company Directors who are paid monthly. This results in less tax fluctuations throughout the year.
The "Alternate" method of calculation is consistent with the method used for non-directors (except for in the last payroll in the tax year).
FAQs
National Insurance is higher or lower than usual in the final month of the tax year (March)
It's likely that you're paid via the Alternate Method of National Insurance. You can verify this in the People tab under "Work & Pay".
When using the Alternate Method, at the end of the tax year, calculations work out whether more employee National Insurance is due and deduct it from their last payment.
This calculation is done by looking at:
The total National Insurance paid over the whole tax year
The total earnings subject to National Insurance over the whole of the tax year
In any other month, when using the Alternate Method, the National Insurance calculation will not factor in the rest of the tax year.
As a result, fluctuations in the final month of the tax year are to be expected, particularly if pay has not been consistent throughout the tax year or the director has had gaps in employment.
Can I update the NI method for a director?
This is only doable in the first month of the tax year (April). As updating in any other month confuses HMRC and can result in incorrect calculations.