Why have the PAYE/NIC deductions changed?
Change in Pay
PAYE and NIC deductions are based on a percentage of pay, so if your pay changes, these deductions are likely to change in the same direction. A change in pay might also put you into a different tax band so the rate of PAYE/NIC may have changed.
Change in PAYE Tax Code
The PAYE deductions are based on your PAYE Tax Code. The standard tax code is 1257L which gives you an annual tax-free allowance of £12,570. In other words PAYE is not deducted from the first £1,047.50 of pay per month. Generally, if your PAYE code increases, you get more of a tax-free allowance so the PAYE deductions decrease, and vice versa. The PAYE tax code is determined from the employee’s joining details, such as the starter checklist and P45, then can only be changed by HMRC.
Directors usually pay NIC on an annual basis. So they pay no NIC while their year to date pay is below the NIC thresholds. When their year to date pay goes over the thresholds they pay the full rate of NIC on the excess. So directors on a small salary, typically around £10k per annum, will notice that they pay no NIC in April to December, then start paying NIC in January to March. There are two starting thresholds for NIC – £9,100 for Employers NIC and £12,570 for Employees NIC (2023/24).