Directors’ NICs: Make It Work for You in 2025–26

I Hate Numbers: Simplifying Tax and Accounting

National Insurance Contributions (NICs) work differently for company directors—and misunderstanding them can cost you. In this episode of the I Hate Numbers podcast, we walk through the 2025–26 rules, salary thresholds, and two key methods of NIC calculation. Whether you take a regular wage or one-off payments, knowing how to handle director NICs can save you money, reduce stress, and keep HMRC off your back.

Main Topics & Discussion

How Director NICs Differ From Regular Employees

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• Directors have an annual earnings period, not weekly/monthly thresholds
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• HMRC calculates NICs based on total annual earnings
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• Irregular pay? No problem—NICs are smoothed out over the year
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• Directors are not subject to minimum wage laws
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Two Methods for NIC Calculation

1. Annual Earnings Method (Default)

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• Works on cumulative pay vs. annual thresholds
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• Ideal for directors taking irregular or one-off salary payments
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• Flexible but may result in large NIC bills late in the year
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2. Alternative Method (Regular Earnings Basis)

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• NICs calculated monthly like regular employees
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• Ideal for steady monthly salaries
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• Requires end-of-year reconciliation to ensure total NIC due is paid
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2025–26 NIC Thresholds & Rates

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• Primary Threshold (Employee): £12,570 (NIC starts here)
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• Upper Earnings Limit: £50,270 (NIC drops to 2% above this)
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• Employer NIC Threshold: £5,000 (NIC starts here)
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• Employee Rate: 8% (then 2%) | Employer Rate: 15%
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Choosing the Best Method

Annual Method

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• Best for flexible, irregular salary patterns
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• Slower NIC buildup—good for cash flow
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• May cause unpredictable deductions
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Alternative Method

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• Best for steady monthly salary (e.g. £1,200/month)
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• Predictable deductions, easier budgeting
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• Must reconcile at year-end; risk of surprises if ignored
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Salary Planning Options

Option 1: Pay £5,000 Salary

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• No income tax, employee NICs, or employer NICs
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• Doesn’t qualify as a state pension year
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Option 2: Pay £12,570 Salary

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• Full personal allowance used
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• Triggers NICs but qualifies for state pension
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• Check employment allowance rules if sole director
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Common Mistakes to Avoid

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• Using annual method without tracking thresholds
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• Forgetting year-end reconciliation under alternative method
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• Assuming £5,000 salary qualifies for pension—it doesn’t
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• Missing out on planning opportunities that reduce NIC and tax
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Real-World Examples

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• One-off annual salary: Use annual method
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• Monthly wage of £1,200: Use alternative method
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• Reconcile by March or risk penalties
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Final Thoughts

Director NICs give you flexibility—but require careful planning. Choose the right method, monitor thresholds, and don’t leave payroll to chance.

Links Mentioned in This Episode

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• 🔗 Book a Call
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Episode Timecodes

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• [00:00:00] – Intro: Why this matters for directors
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• [00:00:32] – Director NIC basics vs employees
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• [00:02:00] – Method 1: Annual Earnings Method
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• [00:03:48] – Method 2: Alternative Method
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• [00:05:53] – NIC thresholds and rates for 2025–26
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• [00:06:33] – Comparing the two methods
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• [00:08:00] – Salary planning tips
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• [00:09:09] – Common NIC mistakes to avoid
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• [00:10:00] – Real-world examples
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• [00:10:55] – Final thoughts & next steps
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Host & Show Info

Host Name: Mahmood Reza

About the Host: Mahmood is an accountant, business finance coach, and founder of I Hate Numbers. With decades of experience advising directors and small businesses, he helps you plan it, do it, and profit.

Podcast Website:https://www.ihatenumbers.co.uk/i-hate-numbers-podcast/🎧 Listen & Subscribe to I Hate Numbers

Make your director NICs work for you. Or listen on Apple Podcasts, share this episode, and check out the I Hate Numbers book for smarter business planning tips. Plan it. Do it. Profit.

Additional Links

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• 🔗 I Hate Numbers YouTube Channel
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• 🔗 Buy the I Hate Numbers Book
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