I have a sole-director client who is a building contractor with many sub-contractors.
I use 12Pay to look after his CIS deductions, certificates etc, and keep records of his own salary.
This month his cumulative salary has exceeded the Lower Earnoings Limit and the software report shows that he now has a NI liability.
Is it normal for a director to pay NI to HMRC following the month in which he incurs it (i.e. at the same time as he pays over his CIS deductions) or is it normally paid in one lump along with his income tax?
Any PAYE/NI deducted must be paid by the 19th of the following tax month. Normally directors pay is worked so that they stay under the limit for the whole tax year.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Or quarterly. Or evan annually for some directors.
Have a look at this booklet on the subject :
http://www.hmrc.gov.uk/nitables/ca44.pdf
Quite often directors do not know at the start of the year how much they will get by the end of it so quite often pay minimal tax and N.I. in the first and often second quarters.
Directors also do not necessarily have to take salary every month.
When they do know how much is available to them then generally there will be a tax planning excercise with the accountant to discuss how much they take in salary compared to dividend.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Directors have the option to either pay NI in the same way everyone else doe (monthly according to the pay for that month), or which is normal - or accumulated as if they were paid annually. So if the annual salary never reaches the annual NI limits to actually pay NI, they sometime don't - even if in one month their income is over the limit had they been paid monthly!
As an exercise, if you increase the directors pay in month 1 to £1,000, you would expect there to be a deduction for NI - but you should find there is not. This is because it is being accumulated annually for NI purposes.
If you are using payroll software and you have chosen "employee is a director" the software normally calculates the NI on an annual cumulative basis with any adjustment being made in Month 12.
Just to develop Frauke's point, a common avoidance technique for directors used to be when bonuses were paid, avoiding huge amounts of NI by paying a large amount for one week only. Hence why NI for directors mirrors PAYE.
