When to work out NICs and PAYE

As a general rule both NICs and PAYE are operated when a payment of earnings is made to an employee.

For PAYE purposes

If the employee is not a director, operate PAYE on the earlier of

• When you actually make the payment
• When the employee is entitled to be paid, even if the pay is not drawn until later.

If the employee is a director, operate PAYE on the earlier of

• When you actually make the payment
• When the director becomes entitled to be paid
• When the payment is credited in the company accounts or records, even if
  • The director cannot draw the money straightaway because there is a block on the right to payment
  • The credit is not specifically in an account in the directors name
• When the remuneration is fixed or determined
  • If the amount for a particular accounting period is determined before the end of that period, take the date as being when the period ends
  • If the amount is determined after the period ends, take the date as being when the amount is determined

For NICs purposes

The point of payment is that at which the earnings are placed unreservedly as the disposal of the employee.
If the employee is a director, CA44 National Insurance for Company Directors (PDF 188K) will give you further information.

You can seek advice on what to do for PAYE and NICs purposes by telephoning the Employer Helpline.

Late notification of marginal items of pay

Occasionally employers’ payroll sections don’t get to know about certain marginal items of pay, for example expenses, until some time after they have been paid. So some calculate the NICs due on these payments in a later earnings period because it is time consuming to have to revisit the correct earnings period and recalculate the NICs due. We accept that it is sensible to allow employers to use the later earnings period to calculate the NICs due.

Similarly, we accept that on the very rare occasion when such payments are notified so late that the most convenient earnings period falls within the next tax year, it is sensible to allow employers to use the later earnings period to calculate the NICs due.
Our employer compliance officers will only ask the employer to recalculate the Class 1 NICs and allocate the payment to the correct earnings period where

• It appears to the employer compliance officer that the employer is deferring the calculation in order to avoid or reduce NICs
• The deferred calculation has had a material effect on an individual’s benefit entitlement. So employers should take particular care to ensure payments to employees earning around the Lower Earning Limit (LEL) or to employees with variable earnings are assessed for Class 1 NICs as soon as possible.