Directors NI

Like other employees, Directors pay National Insurance on their pay. However contributions are based on their annual earnings, rather than what they earn in each pay period.

Calculation

There are two methods to calculate National Insurance:

• the standard annual earnings period method

• the alternative method.

Impact on cashflow

The 'standard' method suits directors who are paid irregularly, and companies who need extra cash in the first part of the tax year. That's because, as the director's annual earnings increase over the year, they will pay more National Insurance.

The 'alternative' method is more commonly used for directors who are paid regularly, and enables national insurance deductions to be made regularly throughout the year.

See gov.uk for more about Directors National Insurance, and Xero for information about how to set up an employee as a Director.