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HMRC internal manual

National Insurance Manual

NIM12001 - Class 1: Calculating Class 1 NICs for Directors: Introduction

The legislation on employed earners and Class 1 contributions applies to directorsunless otherwise stated or specific administrative concessions apply.

Payments to a director are liable for Class 1 contributions because a directorship is anoffice (ESM2501 for offices generally and ESM4040 for directors) and therefore within thedefinition of “employed earner” in Section 2(1)(a) SSCBA 1992.

Normally payments to a director, for acting as a director, are earnings for Class 1 butthere are exceptions. These are where the conditions of regulation 27 SSCR 2001 aresatisfied for certain payments to professional people and to nominee directors (NIM12004). There is also an administrative concession where anon-resident director only attends board meetings in Great Britain & Northern Ireland(NIM12013).

Directors can also be shareholders in their companies so payments to them can be in thatcapacity rather than as directors (NIM12012). Particular careneeds to be exercised when considering whether payments to directors are advance paymentsof earnings under regulation 22 SSCR 2001 (NIM12014).

Unlike other employed earners, the earnings period of a director, as defined in thelegislation, is normally the year in which the earnings are paid (regulation 8 SSCR 2001)(NIM12021). An earnings period for a director is thereforecommonly designated an “annual” earnings period (AEP) although it is not a termused in the legislation. Without the legislation, which was introduced from 6 April 1983,a director could be voted the whole of his or her remuneration in one week of the tax yearand avoid most of his or her Class 1 primary liability because of the weekly or monthlyUpper Earnings Limit (‘UEL’).