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HMRC internal manual

Employment Income Manual

From
HM Revenue & Customs
Updated
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Non-cash remuneration: NICs avoidance

Schemes involving payment in non-cash remuneration first appeared after the upper earnings limit on employer’s NICs was abolished in 1985. Previously employers had to pay NICs only up to a threshold level of employee earnings, but from 1985 employers had to pay NICs on the full amount of earnings.

This obligation could be avoided altogether by providing employees with non-cash remuneration disregarded from the calculation of earnings as a payment in kind. This was the basis of schemes first adopted in the late 1980s.

Consequently NICs avoidance, rather than PAYE avoidance, was the main motivation for employers using these schemes. Nevertheless, employers also claimed that the arrangements avoided the obligation to operate PAYE.

Outright tax avoidance was not normally a feature of these schemes. The employer and employee typically declared the non-cash award as a benefit in kind in their respective tax returns. The employee then paid the tax liability under assessment. But the payment date could be much later than that on which tax deducted under PAYE should have been accounted for by the employer. For payments made on or after 6 April 1996, payment might be as much as 21 months after the date on which PAYE would have been due on the same payment. This tax deferral represented a cost to the Exchequer equivalent to lost interest.

Further guidance on NICs avoidance

Further guidance on NICs avoidance is contained within the National Insurance Manual at NIM4000 onwards. For advice on technical and practical handling of the NICs aspects of non- cash remuneration schemes, in the first instance, please contact your local Employer Support Team.