Directors' National Insurance and the annual earnings period

Thresholds and rates for 2026-27

Lower earnings limit

£6,708 a year (GOV.UK: rates and thresholds)

Primary threshold

£12,570 a year, £1,048 a month (GOV.UK)

Secondary threshold

£5,000 a year, £417 a month (GOV.UK)

Upper earnings limit

£50,270 a year, £4,189 a month (GOV.UK)

Employee rate

8% between the primary threshold and upper earnings limit, 2% above (GOV.UK)

Employer rate

15% above the secondary threshold (GOV.UK)

The annual earnings period

Regulation 8 of the Social Security (Contributions) Regulations 2001 gives directors an annual earnings period (NIM12021). HMRC's guidance for employers says directors pay National Insurance on annual pay over £12,570, worked out from their annual earnings and not from what they earn in each pay period. Employer National Insurance is due on directors' pay whatever the size of the company.

Under the standard method, each time a director is paid the employer works out National Insurance on their total pay for the tax year so far (GOV.UK). NIM12021 says the annual lower and upper earnings limits are the weekly figures multiplied by 52, and that the annual or pro-rata period, once it applies, is used for every payment of earnings in the year.

The point at which earnings are paid is also different for a director. CWG2 2026 to 2027 says PAYE applies at the earliest of when the payment is made, when the director becomes entitled to it, or when it is credited in the company's accounts or records.

Directors appointed or leaving during the year

A director appointed during the tax year has a pro-rata earnings period: the number of weeks left in the tax year, including the week of appointment (NIM12022). The thresholds are scaled to that number of weeks out of 52. Someone appointed in tax week 53 has a one-week period.

A director who stops being a director during the year keeps the annual earnings period for that year, including where the company goes into liquidation (NIM12022). The employer tells HMRC by deleting the director's NIC calculation method entry on the FPS (GOV.UK).

The alternative arrangement

NIM12026 allows the director and the company to pay on account, using the same earnings periods as other employees, as long as the employer uses the annual or pro-rata period at the end of the tax year to work out the correct amount due.

HMRC's guidance describes this as suiting directors who are paid regularly. National Insurance is worked out on each period's pay, including bonuses, and at the end of the year payroll software works out whether more employee National Insurance is due and deducts it from the last payment.

On the FPS the director's NIC calculation method field shows AN for the standard annual method or AL for the alternative method, and the week of the director's appointment field is completed (GOV.UK).

Worked example for 2026-27

1. The pay

   For example, a director is paid £1,000 a month for April to February and a £30,000 bonus with the March salary, £41,000 for the year.

2. Months 1 to 11

   Pay to date reaches £11,000 by month 11, below the annual primary threshold of £12,570 (GOV.UK). No employee National Insurance is due.

3. Month 12 on the annual method

   Pay for the year is £41,000. Employee National Insurance is 8% of £41,000 less £12,570, which is 8% of £28,430: £2,274.40, all deducted in March.

4. The same pay on monthly periods

   If the March payment of £31,000 were treated as one month, 8% would apply only between £1,048 and £4,189, £251.28, and 2% to the £26,811 above it, £536.22. The total of £787.50 is £1,486.90 less than the annual method gives.

5. Employer National Insurance

   On the annual method the employer pays 15% of £41,000 less the £5,000 secondary threshold, £5,400 for the year (GOV.UK).

Questions