Employees benefitted from a cut in the main primary rate of Class 1 National Insurance contributions with effect from 6 January 2024. From that date, the main primary rate, which is payable on earnings between the primary threshold of £242 per week and the upper earnings limit of £967 per week fell from 12% to 10%. There was no change to the additional rate payable on earnings in excess of the upper earnings limit, which remains at 2%. The cut will save employees up to £62.82 per month.

Directors have an annual earnings period regardless of their actual pay interval. This means that their National Insurance liability (and the corresponding employer liability) is calculated on their earnings for the year as a whole by reference to the annual rates and thresholds. The in-year change to the main rate complicates the calculation.

Where the liability is calculated on a cumulative basis, the prevailing rate of 12% is used for payments made prior to 6 January. After that date, the annual composite rate of 11.5% should be used.

If the alternative arrangements are used, the contributions are calculated as for other employees with the exception of those due on the final payment of the year, using the prevailing main rate at the time that the payment is made (12% prior to 6 January 2024 and 10% on or after that date). An annual recalculation must be performed when the director is paid for the final time in the 2023/24 tax year, and this is done using the annual rate for the year of 11.5%. Any balance owing for the year is deducted from the final payment.

We can help with the annual recalculation and advise you what you need to do to ensure that your employees and directors pay the right National Insurance for 2023/24. Contact us at enquiries@ardury.co.uk to discuss further.