Why are directors treated differently?
Directors frequently have lump sum payments in respect of
directors’ remuneration and bonuses.
A situation where monthly payments were under the NI limit for
most of the year (small or zero salary) boosted by large bonuses,
would result in the monthly upper limit coming into play on the
large bonus, preventing most of it from attracting NI. To
cope with this, the law requires that all pay to Directors be
computed based cumulatively on the annual NI upper and lower
limits.
How do I setup a director within IRIS PAYE-Master?
Put a tick against 'Director' within the Employee Details >
General Tab. PAYE-Master will then compute the National
Insurance based on Directors rules.
I have setup a Director and no National Insurance is being
deducted, what am I doing wrong?
Often at the start of a new tax year a Director will not pay any
NIC deductions, this is correct and will continue until the
Director has earned over the Employee threshold of £5225 for the
tax year 2007/08. £5035 for the 2006/07 tax year.
For example, under the annual rules in the 2006/07 tax year a
Director will not pay NIC until they have earnt more than £5035 in
the tax year. When they have earnt over this figure they will pay
NIC on all earnings until they reach the Upper earnings level (UEL)
Once the Upper earnings Level has been reached deductions will
reduce to 1%.
There are two methods by which to calculate Directors National
Insurance:
1. Normal NIC deductions can be made (as in the case of a
standard employee) and then before the final payment of the tax
year is made (week 52/month 12) tick the "Director" flag in the
Employee details screen "since Tax Week1" PAYE-Master will then
automatically re-calculate the NIC and adjust the NIC deductions
made as necessary.
Are you still experiencing difficulties? Please contact
Support for further assistance.
