NIM12025 | Class 1: Calculating Class 1 NICs for Directors: Annual earnings periods: Directorship ceases and earnings paid in subsequent tax year

Regulation 8(5) of the Social Security (Contributions) Regulations 2001 (SSCR 2001) (SI 2001 No 1004)

The earnings period is the year in which earnings are paid if the earnings are paid in a tax year after the directorship ceased and they can be linked to any period during which the directorship was held. The earnings are not aggregated with any other earnings with which they would normally fall to be aggregated.

For example, if an employee ceases to be a director in the 2020 to 2021 tax year but remains with the company as an employee and in July 2021 receives:

• fees which relate to the period of the directorship in the 2020 to 2021 tax year and

• his or her normal monthly salary as an employee

NICs should be calculated:

• on the fees by reference to an annual earnings period - in this case the 2021 to 2022 tax year and

• on the salary by reference to the normal monthly earnings period.

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. Although cases where such a period cannot be established will be rare, you should refer any cases to IPD Technical.