If you have set an employee as a Director for your organisation, you may need to update their directorship information to make the correct pro-rata calculations.
Do I need to update my directorship information?
In accordance with HMRC's National Insurance for Directors guidance (CA44), we implemented the director's final period of the year recalculations. This means a director who starts his position part-way through the year has a different calculation than someone who was a director for the whole tax year. You'll need to check any director at your organisation whose directorship started at the beginning of the tax year so we calculate the correct pro-rata. For example, if you started using Xero part-way through the year, the directorship start date you entered was the same as the pay calendar you were using, rather than the date the directorship started.
Directorship start date
Make sure the correct start date is in Xero for all directors. If this date is not correct, update it before you run your next pay run or the last payroll of the year.
Annual National Insurance (NI) calculation method
If an employee becomes a director after the first week of the tax year, we now use the annual NI calculation method. Xero will automatically set the annual calculation method for those who fall under this scenario.
How can I update my directorship information?
If a director's information is not correct, you need to make changes. We have lifted the restriction on the date range you can enter for the directorship start date. This way, you can enter the exact date the directorship started for an employee, even if it was earlier than when you started using Xero.
Here's what you'll need to do:
- Review directorship start date
- Review NI calculation method
- Update an employee's directorship information
Review and update an employee's directorship information
- Go to Payroll, then click Employees.
- Click the employee who is the company director.
- Click the Taxes tab.
Under Tax Information, set your employee's directorship employment status.
- Under Is [employee name] a Director?, click Yes to set the employee as a director.
- Under Directorship Start date, select the date they became the company director.
Under NICs Calculation Method, select how their National Insurance calculates:
- Annual - (also known as the Non-Cumulative or NIC method): The director doesn't pay any National Insurance until they meet the annual threshold (The 2017/18 threshold is 8164. The 2016/17 threshold is 8060). Each time you pay a director, Xero looks at their total pay for the tax year so far, and once the threshold is exceeded, Xero will start to deduct NIC. This means that it is unlikely you will see NIC deductions until the later months of the year.
- Alternative - (also known as the Cumulative method): Xero looks at the threshold (The 2017/18 threshold is 8164. The 2016/17 threshold is 8060) in conjunction with the current tax week and the start date of directorship before it calculates your directorship deductions.
- Click Save.