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HMRC internal manual

National Insurance Manual

NIM02380 - Class 1 NICs : Earnings of employees and office holders : Tax equalisation payments


Employees who are sent from abroad to work in the UK or who are sent from the UK to work abroad may be tax equalised. This means that under the terms of an agreement between the employer and the employee, the employee will be entitled to specified net cash emoluments and non-cash benefits. The employer will undertake to meet the UK income tax arising from these net cash emoluments and benefits.

The purpose of such arrangements is usually to ensure that employees enjoy the same standard of living as they would have enjoyed if they had stayed in their own country.

For Class 1 NICs purposes, the amount of tax paid by the employer on the employee’s behalf is included in the employee’s gross pay because it is a “profit” derived from the employment and therefore satisfies the definition of “earnings”in section 3(1) of the Social Security Contributions and Benefits Act 1992.  See NIM02010 for guidance on the meaning of “earnings”.