Director receives salary of £1000 on 28th of each month
from April 2000. Company pays for various living expenses of
£500 monthly (assume for the example that expenses are paid at
the same time as salary) and also for an extension to the
director’s house costing £18000 and paid 15 June 2000.
The expenses and extension are all the pecuniary liability of the
director.
Cumulative NICs shown but the amount payable in any month is
the cumulative total less any amounts previously paid. The NICs
amounts are also rounded down for ease of presentation.
| Date | Cumulative | Primary | Secondary | Notes |
| 28 April | £1500 | Nil | Nil | Earnings below Earnings Thresholds |
| 28 May | £3000 | Nil | Nil | As above |
| 15 June | £21000 (extension to house £18000) | £1704 (21000 - 3952 @ 10%) | £2027 (21000 - 4385 @ 12.2%) | Earnings above Earnings Thresholds |
| 28 June | £22500 | £1854 | £2210 | Calculations as before |
| July - September | £24000 – £27000 | £2304 | £2759 | Calculations as before |
| October | £28500 | £2386 (27820 – 3952 @ 10%) | £2942 (28500 – 4385 @ 12.2%) | Primary NICs restricted to earnings up to UEL* |
| Nov - March | £28500 - £36000 | £2386 | £3125 - £3857 | No restriction on secondary liability |
If the employer had contracted with the utility companies,
builder and so on to provide the services leading to the expenses,
the liability is under Class 1A. The Class 1 earnings would then be
£1000 monthly and the thresholds reached on different dates.
The first payment of earnings for primary NICs is July (£4000
cumulative salary); and in August (£5000 cumulative salary)
for secondary NICs.
If the employer decides to ‘pay on account’ (
NIM12026) Class 1 NICs are due from the
first month and the employer adjusts the final payment at the end
of the year to ensure the same amount of NICs is paid as in the
example.
* The above example is for a tax year prior to 6 4 2003. From
6 4 2003, a new primary liability was introduced on all earnings
above the Upper Earnings Limit. This should be taken into account
when applying the example to tax years 2003/2004 onwards. Full
guidance on the new primary liability on earnings above the Upper
Earnings Limit is provided at
NIM01100.
