As a result of the Autumn Statement reduction in NIC standard rates by 2% from 12% to 10%, employees will benefit from a cut in National Insurance for payments from 6th January 2023.
Directors NI is different to those of employees.
To avoid various NIC avoidance measures being applied by directors and their remuneration from some many years ago, an annual NIC period was introduced to ensure a fairer collection of liabilities and prevent avoidance of NICs.
There are two method of applying NI for directors:
- The annual method
- The alternate method (similar to employees except for their last payment)
The annual method uses annual based thresholds which may be prorated in relation to a directors start point tax week (not month).
The alternate method mirrors similarly to employees on a period by period basis excepting the last period they are paid in a tax year when the annual method is to be applied with a comparison to the accumulation of period amounts with the difference addition or refund being applied to the final year payment.
So with the change from 6th January 2024, what is the directors annual rate?
During 2023/2024 there are 9 months at 12% and 3 months at 10% so the blended annual directors rate is:
11.5%
This blended rate now applies to the whole of the tax year, even if the director has left or start part way through the tax year.
So for the 2024/2025 tax year (for payments from 6th April 2024) the annual rate for directors then aligns with employee period based percentage becomes:
10%
So if bonus for directors are delayed until January, what rate applies – the rate is 11.5%. For employees a January bonus would have a 10% charge,
If the bonus was paid in December the correct rate is 12% for both, but then in January the director will be due a 1/2% refund as the new blended rate of 11.5% applies.
So juggling the bonus dates for employees may make a difference, however, for directors, it is the same in the end.
Are you ready for the change? Get your software updated.
PAYadvice.UK 14/12/2023