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HMRC internal manual

National Insurance Manual

Class 1 NICs : Earnings of employees and office holders : Staff suggestion schemes

In the past different criteria were used to determine whether an award made under a staff suggestion scheme was taxable or liable for NICs.

Up to and including the 2002/2003 tax year the tax position was governed by extra statutory concession (ESC) A57. This exempted certain staff suggestion awards from a charge to tax.

For 2003/04 onwards, the concession was replaced by a statutory exemption provided at section 321 ITEPA 2003. The conditions for exemption remain much as they were under the terms of the concession, but there are more detailed rules that apply when an employer makes more than one award for the same suggestion - see EIM06600 onwards for detailed guidance on the tax position.

With effect from 6 April 2001 the NICs position was aligned with the tax position which existed by virtue of ESC A57 and now exists by virtue of section 321 ITEPA 2003. From that date awards under staff suggestion schemes are therefore excluded from NICs only if they satisfy the tax criteria. Prior to that date awards under staff suggestions schemes were not generally held to be earnings for NICs purposes unless the making of suggestions was covered by the duties of the employment.

See EIM06600 onwards for guidance on the application of section 321 ITEPA 2003 and see SE06600 for guidance on the application of ESC A57.

In the event that a staff suggestion award is made in more than one form – for example, a holiday is provided alongside a cash payment – the various elements of the award must be added together to determine whether or not the monetary limits imposed by the tax exemption are satisfied. If the limits are exceeded a liability for NICs will arise in respect of the excess amount.


An employee receives an award comprising

  • a holiday arranged by the employer and costing £4,000
  • £1,500 cash

Even though the award satisfies all other requirements of the tax exception, it exceeds the maximum of £5,000 and a liability for NICs will arise in respect of the £500 excess.