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earner’s employment with that company shall (subject to regulations 12 and 14 to 17) be assessed on the amount of all such earnings paid in the earnings periods specified in paragraphs (2) to (5) below. This paragraph refers to other regulations in SSCR: regulation 12 provides for calculating Class 1 NICs by adapting the weekly or monthly LEL and UEL amounts for an annual or pro rata earnings period; regulations 14 to 16 provide for calculation of Class 1 NICs where there is aggregation of earnings; and regulation 17 apportions liability for Class 1 NICs where an employed-earner receives a single payment of earnings in respect of two or more employments with different employers. (2) Where on one (or more than one) occasion a person is appointed a director of a company during the course of a tax year, the earnings period in respect of such earnings as are paid in so much of the tax year as remains commencing with the week of appointment (or, as the case may be, first appointed) shall be the number of weeks in that period. Not the easiest sentence to comprehend, but essentially it provides for a pro rata annual earnings period for a person who is appointed as a director after 6 April of a tax year. All pro rata calculations for directors are based on 52 weeks even if there are 53 weeks in the year. However, if a director is appointed in tax week 53, the pro rata earnings period is one week. (http://bit. ly/2luoDnU) If a company appoints the same person as a director on more than one occasion in a tax year, for example if re-appointed following resignation, the original earnings period, annual or pro rata, remains in force. Similarly, if a director has multiple directorships, the earnings period used for the first directorship applies. (http://bit. ly/2m7tleY). (3) If a person is a director of a company at the beginning of a tax year, the earnings period in respect of such earnings shall be a year, whether or not he or she remains such a director throughout that tax year. If a company pays earnings to a former director in respect of the directorship and those earnings are paid in the same tax year as the one in which the directorship ends, those earnings must be added to the earnings received as a director
and NICs calculated using the director’s earnings period. If the director becomes an employee of the same company, the NICs due on earnings received as an employee must also be calculated using the director’s earnings period. If the former director continues to receive earnings as an employee the earnings period changes to the appropriate one for the new employment at the beginning of the next tax year. (http://bit.ly/2lPATlJ) ...where aggregation of earnings occurs either an annual or the longer (or longest) pro rata earnings period is used... (4) Where the earnings paid in respect of two (or more) employed earner’s employments fall to be aggregated and the earnings periods in respect of those earnings would be of different lengths, then if those periods are determined only by paragraphs (1) to (3) above, or if the length of one (or more) of those periods is determined by those paragraphs and the length of one (or more) of the others is determined by any other provision in the SSCR, the earnings period in respect of all those earnings shall be either the period determined by paragraphs (1) to (3) or, where there is more than one such period, the longer or longest period so determined. The National Insurance Manual offers no clarification of this regulation, which ensures that where aggregation of earnings occurs either an annual or the longer (or longest) pro rata earnings period is used for payments of earnings. See the comments to paragraph (6) below. (5) If a person is no longer a director of a company and, in any tax year after that in which he or she ceased to be a director of that company, he or she is paid earnings in respect of any period during which he or she was such a director, then, notwithstanding regulation 15, those earnings shall not be aggregated
with any other earnings with which they would otherwise fall to be aggregated, and the earnings period in respect of those earnings shall be the tax year in which they are paid. This refers to situations where a person has ceased to be a director of a company and in a tax year later than the tax year in which the directorship ended receives from that company a payment of earnings that is attributable to his or time in that directorship. In such circumstance, the earnings are not aggregated with any other earnings – such as a payment of monthly salary for being an employee – and an annual earnings period operates in respect of that payment. The position where a director receives earnings in respect of his directorship in a tax year after he resigns but those earnings cannot be attributable to any period is currently under review. (http:// bit.ly/2m2qcwJ) (6) Without prejudice to paragraphs (1) to (5), a director and any company employing him may pay on account of any earnings-related contributions that may become payable by them such amounts as would be payable by way of such contributions if those paragraphs did not apply. This enables employers to operate standard Class 1 NICs calculations for a director as though he or she were not a company director with Class 1 NICs thereby calculated on his or her earnings as they would be for an employee paid, for example, monthly. Nevertheless, the provisions of paragraphs (1) to (5) of regulation 8 remain pertinent, which means that overall the Class 1 NICs payable in respect of the company director must not be less than that which would be due had an annual or pro rata earnings period been applied. Checking of the amounts of Class 1 NICs paid and those actually payable must be performed at the end of the tax year with corrective action taken to ensure no underpayment of NICs occurs for that year. However, the secondary contributor must use the annual or pro rata earnings period at the end of the tax year to calculate the correct amount of Class 1 contributions due. (http://bit.ly/2lPkm12) (7) If a full gender recognition certificate is issued under the Gender Recognition
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Issue 29 | April 2017
| Professional in Payroll, Pensions and Reward |
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