HMRC is urging directors on PAYE to review how their National Insurance contributions (NICs) were calculated for recent tax years. This is essential where employers used the annual earnings period method, because two NIC rate reductions took effect in 2024, on 6 January and again on 6 April. Calculations that did not reflect both changes may have produced underpayments.
The guidance also covers directors whose NICs were worked out using the alternative method through the year. HMRC says the warning applies to all tax years, but it is particularly relevant where in-year rate changes occurred, such as in 2022 to 2023.
Employers should review submissions from 2022 to 2023 onwards to confirm no further NICs are due. If underpayments are found, HMRC recommends correcting these through PAYE where possible.
Where PAYE self-correction is not possible, make a disclosure to HMRC. If your organisation has a dedicated customer compliance manager (CCM), inform them of any self-corrections or disclosures. If you do not have a CCM, submit a voluntary disclosure and quote reference “DNIC2025” in all correspondence.
Directors can reduce risk by checking that payroll software applied the correct rates at each change point, verifying that annual earnings period rules were used for directors, and retaining evidence of any adjustments. Employers should also ensure internal controls flag mid-year rate changes promptly and that reconciliations at year-end compare liabilities to payments made.
HMRC says taking these steps now will help identify and resolve any shortfalls before HMRC queries are raised, minimising interest and potential penalties.
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