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HMRC internal manual

National Insurance Manual

Class 1: Calculating Class 1 NICs for Directors: Examples: Regular salary and personal expenses paid

Regulation 8 SSCR 2001

Director receives salary of £1000 on 28th of each month from April 1999. Company paysfor various living expenses of £500 monthly (assume for the example that expenses arepaid at the same time as salary) and also for an extension to the director’s housecosting £18000 and paid 15 June 1999. The expenses and extension are all the pecuniaryliability of the director.

Cumulative NICs shown but the amount payable in any month is the cumulative total less anyamounts previously paid. The NICs amounts are also rounded down for ease of presentation.

Date £ Cumulative Primary £ Secondary Notes
28 April £1500 Nil Nil Earnings below LEL and EET
28 May £3000 Nil Nil As above
15 June £21000 (extension to house £18000) £1756 (21000 – 3432 @ 10%) 2033 (21000 - 4335 @ 12.2%) Earnings above LEL and EET.
28 June £22500 £1906 £2216  
July - August £24000 – £25500     Calculations as before
September £27000 £2256 £2765 Primary NICs restricted to earnings up to UEL*
Nov - March £28500 - £36000 £2256 £2948 - £3863 No restriction on secondary liability

If the employer had contracted with the utility companies, builder and so on to providethe services leading to the expenses, the liability is under Class 1A. The Class 1earnings would then be £1000 monthly and the thresholds reached on different dates. Thefirst payment of earnings for primary NICs is July (£4000 cumulative salary); and inAugust (£5000 cumulative salary) for secondary NICs.

If the employer decides to ‘pay on account’ (NIM12026)Class 1 NICs are due from the first month and the employer adjusts the final payment atthe end of the year to ensure the same amount of NICs is paid as in the example.

  • The above example is for a tax year prior to 6 4 2003. From 6 4 2003, a new primaryliability was introduced on all earnings above the Upper Earnings Limit. This should betaken into account when applying the example to tax years 2003/2004 onwards. Full guidanceon the new primary liability on earnings above the Upper Earnings Limit is provided at NIM01100.