It appears that there is an increase in start up activity and one of the pitfalls of having your own company and director salary is that you set the right level to qualify for a whole year’s credit towards your new single-tier state pension.

Basic Rule

The basic NI contribution rule for employees is that for each week/month you’re paid above the lower earnings limit (LEL), which is currently £109 per week.  Each full year’s worth of these credits counts towards your state pension.

But, credits for directors are worked out differently.

Rules for Directors

The basic NI contribution rule for directors is that until their earnings reach £5,668 (currently), these will not count towards their contribution record.  The problem is caused because the annual earnings period for directors applies from the time that they are appointed and not the time they start to pay themselves.

A similar problem can occur where a director resigns part way through a year because the annual earnings period has to be reduced to the period of directorship.

Thus where you start to pay yourself as a director for the first time, or resign your directorship, check that your earnings for the year exceed the LEL.  If they do not qualify you can top up your NI record through voluntary contributions (called Class 3 NI).

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