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HMRC internal manual

National Insurance Manual

Class 1: Vouchers - Introduction

Section 3(1)(a) Social Security Contributions & Benefits Act 1992

Regulations 24 and 25, paragraphs 14 and 15 of Schedule 2, and Part 5 of Schedule 3 Social Security (Contributions) Regulations 2001

Vouchers provided by an employer to an employee are regarded as earnings (see NIM02010) for NICs purposes. But whereas it was easy to assess and collect Class 1 NICs due on the value of a cash voucher (see NIM02497 - NIM02498), this was not the case with certain non-cash vouchers (see NIM02413) - for instance, vouchers exchangeable only for goods or services.

As a result, it was easy to reduce or avoid their Class 1 NICs liability by paying an employee partly in cash and partly by non-cash voucher, instead of fully in cash. And this type of pay practice could also affect an employee’s entitlement to contributory benefits/pension, because only the amount of cash earnings is taken into account for those purposes.

So with effect from 6 April 1999, the Government introduced new provisions which:

  • with certain exceptions (see NIM02416) brought the NICs treatment of non-cash vouchers into line with that of cash vouchers; and
  • made it easier to collect Class 1 NICs on those types of non-cash voucher which are not excepted.

The 1999 provisions did not alter or affect non-cash vouchers which are exchangeable for an asset shown in Parts 3 and 4 of Schedule 3 to the above Regulations. Such vouchers are not disregarded in the calculation of earnings for Class 1 NICs purposes- see NIM04002.