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HMRC internal manual

National Insurance Manual

Class 1 NICs : Earnings of employees and office holders : Annuity contracts

An annuity contract is a contract with an insurance company to provide an employee with payment(s) on retirement.

When deciding if Class 1 NICs are due on the premiums, consider whether it is the employer or the employee who is liable to pay the premiums. If it is the:

  • employee who enters into the contract but the employer pays the premiums, the employer is simply meeting the employee’s own liability. The payment is earnings and Class 1 NICs are due. See NIM02010 regarding the meaning of “earnings” and see also NIM02270 for general guidance on the payment of bills by an employer.
  • employer who enters into the contract with the insurance company, payment of the premiums by the employer constitutes a payment within regulation 25 of, and paragraph 1 of Part II of Schedule 3 to the Social Security (Contributions) Regulations 2001 and there is no liability for Class 1 NICs. There will, however, be no liability for Class 1A NICs on the benefit of the provision of the annuity since such provision is expressly excluded from liability to income tax by virtue of section 307 of ITEPA 2003 (formerly section 155(4) of ICTA 1988.) (See NIM13000 for guidance on the general principles in respect of Class 1A liability.)