To Change an Employee's Director Status

If an employee stops being a director part way through the tax year, HMRC guidelines are that the employee must stay as a director for NI purposes until the start of the next tax year. However, there may be a reason why an employer needs to change an employee from a director to non-director during the tax year, possibly because an employee was incorrectly set up as a director.

Director employees in the application are linked to employee profiles that have the Director box ticked. Follow these instructions to change the employee from a director to non-director status:

  1. Open the Payroll folder, and then click Processing.

  2. If you are using groups, in the Select Payroll Groups list, click to select the group(s) you want to process and then click OK. Then locate the employee's record using the List tab or by pressing CTRL+F to search for the record.

  3. Change the employee's profile to one that has the Director box unticked. A warning is displayed that the employee should normally remain as a director for NI purposes until the start of the new tax year. Click Yes to change the employee's director status or No to leave the status unchanged.

  4. If the employees director status was changed, manually calculate the employee's NICs as a non-director. See the approved methods on the HMRC web site at www.hmrc.gov.uk/paye/employees/changes/directorship.htm.

  5. Use the Adjust NI command to adjust the employee's NICs for the current tax year. Instructions to do this are included on the Payroll - Utilities - Adjust NI Help topic.

If an employee changes to a director part way through the tax year, you can change the employee's profile to one that has the Director box ticked. Depending on the employee's NI code, different messages may be displayed - follow the instructions in the messages. After the employee's record has been updated, the Calculation command will calculate the employee's NICs according to the setting in the Adv box on the employee's record. As director’s NIC is normally calculated on a cumulative value through the tax year, the calculations are done on a pro-rata basis.  For example, if an employee changes to a director half way through the year, the NIC is calculated using half of the annual NI bandwidth.