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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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NIM02020 - Class 1 NICs : Earnings of employees and office holders : Payments excluded from liability

Some payments of earnings may be excluded from liability for NICs. Regulation 25 of the Social Security (Contributions) Regulations 2001 and Schedule 3 to those Regulations provide that certain payments “are to be disregarded in the calculation of earnings from employed earner’s employment for the purpose of earnings-related contributions”.

The most common payments which fall to be excluded from earnings for Class 1 NICs purposes are :

  • acceptable business expenses (see NIM05020)
  • most payments in kind
  • provision of services or other facilities
  • provision of board or lodging.

But see NIM13000 for general principles in respect of Class 1A liability, as some payments which are excluded from liability for Class 1 NICs may attract a Class 1A liability.

Some payments in kind are not excluded from earnings for Class 1 NICs. These are mainly those detailed in Parts III, IV and V of Schedule 3 to the Social Security (Contributions) Regulations 2001.