Directors are office holders, so their National Insurance follows different rules from ordinary employees. The difference only shows when pay is uneven, such as a director who takes most of the year's salary in one month, a bonus voted at the year end, or someone appointed part-way through the tax year. This guide covers the rules for 2026/27 with worked examples.
Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
Company directors pay National Insurance on an annual earnings period: HMRC looks at total earnings for the tax year, not each payslip. For 2026/27 the company pays 15% employer NI on annual earnings above £5,000, and the director pays 8% employee NI between £12,570 and £50,270 and 2% above. So a £12,570 salary costs £1,135.50 in employer NI and no employee NI, whether it is paid monthly or in one go.
For most employees, National Insurance is worked out separately for each pay period. If you earn more than the monthly threshold in one month, you pay NI on that month even if you earn nothing the rest of the year. Directors are different: their earnings period is the whole tax year, 6 April to 5 April, no matter how often they are paid.1 NI is calculated on total earnings in the year against the annual thresholds.
Anyone who is a director on 6 April has an annual earnings period for that year, even if they resign before it ends. Someone first appointed during the year has a pro-rata annual earnings period from the tax week of appointment to the end of the year.1
| Secondary threshold (employer NI starts, 15%) | £5,000 a year |
| Primary threshold (employee NI starts, 8%) | £12,570 a year |
| Upper earnings limit (employee rate drops to 2%) | £50,270 a year |
| Lower earnings limit (qualifying year for State Pension) | £6,708 a year |
A director takes no salary from April to February, then £12,570 in March. If the director were an ordinary monthly-paid employee, March alone would be judged against the monthly thresholds (£1,048 primary, £4,189 upper limit, £417 secondary): about £418.90 of employee NI and £1,822.95 of employer NI for that month.
Because directors use the annual earnings period, the £12,570 is measured against the annual thresholds instead. Employee NI: nothing, because £12,570 does not exceed the £12,570 primary threshold. Employer NI: 15% of £7,570 = £1,135.50. The result is identical to paying £1,047.50 a month all year, which is the point of the rule: it stops directors avoiding or creating NI by timing their pay.
A director first appointed during the tax year gets pro-rata thresholds. HMRC counts the tax week of appointment plus the remaining weeks (using 52 weeks for the year), divides each annual threshold by 52, multiplies by those weeks and rounds up to the next whole pound.1
Example: a director appointed in tax week 27 has 26 weeks in the pro-rata period. The primary threshold becomes £12,570 ÷ 52 × 26 = £6,285 and the secondary threshold £5,000 ÷ 52 × 26 = £2,500. A salary of £6,285 for the rest of that year means no employee NI and employer NI of 15% × £3,785 = £567.75. From the next 6 April the director is on the full annual period.
The Personal Allowance for Income Tax is not pro-rated in the same way, so a new director who has had no other income that year can still use the full £12,570 for Income Tax under the PAYE cumulative basis.
Calculating NI only on an annual basis would mean deducting nothing until the year's earnings pass the threshold and then deducting a lot at once. So HMRC allows 'alternative arrangements': the company deducts NI each pay period as if the director were a normal employee, then recalculates on the annual basis when the last payment of the year is made and corrects the difference.1
For a director paid the same amount every month, the two methods give the same total. They only differ when pay is uneven, for example a year-end bonus. In that case the final pay run of the year (or the director's last payment if they leave) carries an adjustment, which can be a refund of NI or an extra deduction. Most payroll software applies this automatically once the employee is flagged as a director and the method is chosen.
Not flagging the director in payroll. If the software treats the director as an ordinary employee, uneven pay is assessed month by month and the year-end figures will be wrong.
Forgetting the Employment Allowance rule. The £10,500 Employment Allowance cannot be claimed by a company whose only employee paid above the secondary threshold is a director, so the £1,135.50 on a £12,570 salary is a real cost for most one-person companies.3
Assuming a lump sum avoids NI. Paying salary in one go does not reduce a director's NI, and paying dividends instead of salary is a different decision with its own tax, covered in the salary vs dividends calculator.
On an annual earnings period: total earnings for the tax year are compared with the annual thresholds. Employer NI is 15% above £5,000 and employee NI is 8% from £12,570 to £50,270 and 2% above. A director appointed during the year uses thresholds pro-rated to the weeks remaining.
The director pays no employee NI, because the primary threshold is £12,570. The company pays employer NI of 15% on the £7,570 above the £5,000 secondary threshold, which is £1,135.50 for 2026/27, unless it can claim the Employment Allowance.
No. Because directors use an annual earnings period, the NI on a lump sum is the same as on the same amount paid evenly through the year. The annual period exists to stop directors timing pay to reduce NI.
An optional method where the company deducts NI each pay period like a normal employee and then recalculates on the annual basis at the director's last payment of the tax year, deducting or refunding any difference. It gives the same annual total and smooths deductions.
Count the tax week of appointment and the remaining weeks (out of 52), divide the annual threshold by 52, multiply by those weeks and round up to the next whole pound. A director appointed in week 27 has a 26-week period, so the primary threshold is £6,285 and the secondary threshold £2,500.
The rates and rules on this page are drawn from the official UK government sources below, using the confirmed 2026/27 figures. Each link opens the relevant HMRC, GOV.UK or Companies House page in a new tab.
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.