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HMRC internal manual

National Insurance Manual

From
HM Revenue & Customs
Updated
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NIM02377 - Class 1 NICs : Earnings of employees and office holders : Examples of how to calculate grossed-up tax

Below you will find examples of how to calculate the amount of tax on which Class 1 NICs are due when an award is made to an employee under a Taxed Award Scheme (TAS) and the tax liability on the award is met by someone other than the employee. See NIM02375 for information about NICs liability where an award is made under a TAS.

The calculation uses the following formula:

Gross pay = Net pay x 100  
     
  100 – rate of tax

Example 1

An employee receives a TV costing £500 and the employer pays the tax.

The tax on the TV is grossed-up to determine the full value of what the employee receives (that is, the value of the TV and the tax paid on it).

In this example:

Gross pay (the cost of the TV and the tax) = £500 x 100  
     
  100 -22
    = £641.02

Class 1 NICs are therefore due on £141.02.

Class 1A NICs will be due on £500 (the value of the TV).

Example 2

An employee receives a cash award of £800 and the employer pays the tax on the award.

The cash award must be grossed-up to determine the full value to the employee of the award and the tax.

Gross pay (the cash award and the tax) = £800 x 100  
     
  100 -22
    = £1,025.64

Class 1 NICs are therefore due on £1.025.64.