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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Class 1 NICs : Earnings of employees and office holders : Medical expenses paid through trust funds

An employer may set up a trust or similar fund out of which employees’ medical expenses are met.

If the contract for the provision of healthcare is made between the healthcare provider and the employer no liability for Class 1 NICs will arise in respect of payments made by the employer into such trusts or funds, nor in respect of payments out of the trust or fund to provide for the cost of medical treatment available under the trust or fund rules.

A liability for Class 1A NICs will arise, however, and the chargeable benefit for the purposes of Class 1A NICs will be the same as that chargeable to tax. The benefit will depend on the facts of the particular arrangement.

See EIM 21772 (previously SE21772) for guidance on the chargeable benefit where trust funds are set up to pay for medical expenses and see NIM13000 for guidance on the general principles applying to Class 1A NICs and NIM13150 for confirmation of the liability position.

If the contract for the provision of healthcare is between the healthcare provider and the employee, but the employer meets the cost of the annual contribution to the trust, a liability for Class 1 NICs will arise.

Generally, the liability in relation to each individual employee will be determined by apportioning the sum paid by the employer between the employee beneficiaries of the trust. If, however, specific sums are payable in relation to named individuals, Class 1 NICs liability will arise on those employees in respect of the identifiable amounts.

See NIM02270 for general guidance where an employer pays for services provided for the private use of an employee.