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HMRC internal manual

Compliance Operational Guidance

Alternative rights of recovery (PAYE directions): primary class 1 NICs: directors: annual earnings period

A director within Regulation 8 SSCR 2001 has an annual earnings period (AEP) and must not be treated the same as normal weekly or monthly paid employees when calculating primary Class 1 NICs.

Primary Class 1 NICs are payable if a director’s cumulative earnings for the year exceeds annual Primary Thresholds (PT) and Secondary Thresholds (ST). If the earnings from an employment reach or exceed the Lower Earnings Limit (LEL) then NICs are payable on all earnings including those below the thresholds.

Directors appointed during the tax year have a pro-rata earnings period, which is the number of weeks left in the tax year from and including the week of appointment (Regulation 8(2) SSCR 2001).

A person who is a director at the start of a tax year or ceases to be a director during the tax year has an annual earnings period for that tax year (Regulation 8(3) SSCR 2001). The annual earnings period also remains if the company goes into liquidation.

Further detailed guidance on annual earnings periods in relation to calculating primary Class 1 NICs where directorships relate to part years or involve multiple directorships is covered at NIM12021 onwards.