I'm a director but not paying any National Insurance, why?

All directors, regardless of their actual pay frequency, have an annual earnings period. This means that the Class 1 NICs for the year are calculated by reference to the annual NICs thresholds, rather than by reference to the thresholds for the pay period, which in your case is monthly.

There are two methods that can be used to work out a director’s Class 1 NICs: the annual earnings period basis (also known as the default method) or the alternative basis. The result is the same: the director and employer will pay the same amount of NICs regardless of the method used, but the pattern of deductions will differ.

Method 1: Annual earnings basis or default method

Under this method, NICs are calculated on a cumulative basis by reference to the annual rates and threshold. Therefore, no primary (employee) contributions are due until the annual primary threshold is reached, contributions are then payable at 12% until the annual upper earnings limit is reached £12,570 for 2026/27), which is likely to be in Month 11 based on a monthly salary of £1,250.

Once over this threshold, employee NICs are payable at 8% until the annual upper earnings limit (£50,270 for 2026/27) is reached. Thereafter contributions are payable at 2%.

Method 2: Alternative basis

One of the effects of using the annual rates and thresholds is that deductions can vary considerably, even though gross salary payments are constant.

To allow contributions to be deducted more evenly throughout the year, the director can elect to use the alternative arrangements. These allow the director’s NIC to be calculated by reference to the thresholds for the pay period, as for other employees. In your case the pay period is monthly and the primary threshold is £1,048 per month. 

A recalculation is performed at the time of the last payment using the annual thresholds, and any contributions still owing are deducted from the final payment. If the final payment is insufficient to cover the employee NICs due, these must be paid by the conpany as the employer.

So, what does this mean for me? 

Going back to the original question, you are having your NICs calculated on annual earnings basis (or default method). This means no employee’s NICs will be payable by you until your cumulative year-to-date salary reaches the annual primary threshold (£12,570 for 2026/27). 

How we can help

At TaxAssist Accountants, we can help you work out what is best director NICs method for you, so please pop along today or give us a call on 01380 829 888 or use our online contact form.

Last updated 17 Jul 2026 | First published 5 Jul 2019

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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