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HMRC internal manual

Compliance Operational Guidance

Alternative rights of recovery (PAYE directions): primary class 1 NICs: background: earnings

Class 1 NICs are calculated on the amount of earnings paid to an employee.

Section 3(1) of the Social Security Contributions and Benefits Act 1992 defines earnings as including ‘any remuneration or profit derived from employment’. Therefore, in order to be earnings a payment must constitute salary or other personal benefit or gain to the employee and must be derived from employment.

Section 6(1) of the same Act prescribes the circumstances in which Class 1 NI is payable on any such earnings. That is, primary Class 1 NI is payable where the amount or earnings paid exceeds the Primary Threshold.

For a liability to pay Class 1 NICs to arise, both Section 3 and Section 6 need to be satisfied. It follows that

  • a payment must be ‘remuneration or profit derived from an employment’ in order to be considered earnings for the purposes of NICs


  • the earnings must be paid to or for the benefit of the employee and must exceed a particular level (the earnings threshold).

For payments to directors by way of fees, dividends or through a loan account see COG932560.

Some payments are disregarded from liability for Class 1 NICs (see COG932450).