Payroll year ends: have the right boxes been ticked for director's National Insurance Contributions (NICs)?

This is a freeview 'At a glance' guide to payroll year ends for directors.

For payroll purposes, a director's National Insurance Contributions (NICs) are calculated by reference to annual earnings in order to prevent NIC avoidance.

During a tax year, there are two ways directors' NICs can be calculated: 

  1. The 'standard method': NICs due on each salary payment are based on the cumulative salary to that date and the annual primary threshold (not pro-rata), with a deduction for NICs already paid in the year. 
  2. The 'alternative method': NICs due on each salary payment are based on that pay period (e.g. weekly or monthly). At the end of the year, an annual calculation must be performed based on all salary payments and the annual threshold. 

Where the alternative method is used during a tax year, employers should check that the correct box is ticked on payroll software to ensure that NICs on any director's employment income are being recalculated correctly at the end of the tax year.


During training workshops for the Schedule 24 FA 2007 regime (error in a return or document penalties) HMRC indicated that an employer would be liable to penalties if they failed to notice if NICs were being calculated incorrectly for directors on their payroll. This would depend on the circumstances. It seems that any penalty in this situation could be suspended for a first offence.

Useful guides on this topic

Salary 2023/24 (avoiding NICs)
 What amount of salary can be paid by an employer to a director/shareholder and avoid or reduce National Insurance Contributions (NICs) in 2023-24? Is it beneficial to pay a slightly higher salary to claim the Employer's NICs allowance and pay some NICs?

RTI: Annual Schemes
An employer may wish to set an Annual Scheme for PAYE under Real-Time Information (RTI) reporting.

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