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HMRC internal manual

National Insurance Manual

Class 1 NICs : Earnings of employees and office holders : Bank charges

Some employers pay their employees’ salaries and wages by direct credit to their bank accounts, that is by a credit transfer. They may also pay their employees’ bank charges by crediting their bank accounts with sums sufficient to cover the charges. Any such sum credited to an employee’s bank account or paid to them in cash will normally be part of the employee’s earnings within section 3(1) SSCBA 1992 and will be liable for the payment of Class 1 NICs in accordance with section 6 of the same Act if the total earnings received in the pay period exceed the earnings threshold.

Exceptionally, the bank charges may occur solely as a result of a failure by the employer. For example, if an employee has a contract of employment entitling them to be paid on a certain day, and the employer fails to pay them at the proper time, the employee may incur unforeseen bank charges. In that case, the employer has breached the employment contract and the employee has suffered a consequential loss for which he or she may sue the employer.

If the employer makes a payment to compensate the employee (for example, by paying the bank charges) the amount paid is not liable for NICs because in such circumstances the payment is not a payment of earnings as defined in section 3 SSCBA 1992. The payment is not derived from the employment (NIM02010) but from something else – namely, the employer’s breach of the contract – and it is therefore not earnings for the purposes of NICs and is more in the way of a payment of ‘damages’ (see NIM02110).