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HMRC internal manual

National Insurance Manual

Class 1 NICs : Expenses and allowances : Relocation allowances : Employees who started work at the new location before 6 April 1998


Prior to April 1998 it was the normal practice to exclude from NICs most expenses paidin connection with the relocation costs incurred by employees in moving to a new job or toa new place of work.

Legal advice received in 1997 confirmed that most relocation allowances are actuallyearnings for the purposes of section 3(1) of the Social Security Contributions andBenefits Act 1992. (see NIM02010 for guidance on the meaning of“earnings”). The opportunity was therefore taken to review the position and toalign the NICs position with the treatment of relocation allowances for tax.

Legislation was introduced into what were then the Social Security (Contributions)Regulations 1979 (at regulation 19(1)(zc) and 19(9)) to exclude from NIC liabilitygenerally only those relocation allowances which were capable of being excluded from tax.

Although the legislation was changed with effect from 6 April 1998 so as to exclude fromNIC liability only those expenses which are also excluded from tax by virtue of Schedule11A of the Income and Corporation Taxes Act 1988 (ICTA 1988) (now Chapter 7 of Part 4ITEPA 2003), the legislation provided a savings provision in relation to anyone commencingperformance of the new duties or starting work at the new workplace before 6 April 1998.

Savings provision

This savings provision can now be found at paragraph 2(2)(b) of Part VIII of Schedule 3to the Social Security (Contributions) Regulations 2001. It provides that where a personcommenced performance of the new duties or started working at the new workplace before 6April 1998 then any expenses reasonably incurred by them in connection with the relocationcan be excluded from liability for NICs. This allows expenses to be excluded from NICseven though they are not qualifying expenses for the purposes of tax by virtue of Schedule11A ICTA 1988 or, from 6 April 2003, are not expenses which are exempt from tax undersection 271 ITEPA 2003.

You should note, however, that the savings provision operates only:

  • where the employee started work at the new location before 6 April 1998, and
  • in relation to relocation expenses which were agreed under a relocation package arranged before that date.

If the employee commenced work at the new location before 6 April 1998 but the terms ofthe relocation package were varied on or after that date - so that a new allowance or anadditional sum is payable - then any such additional sums will be liable for Class 1 NICsunless they are actually qualifying expenses as provided for by Schedule 11A ICTA 1988 or,from 6 April 2003, are expenses which are exempt from tax in accordance with Chapter 7 ofPart 4 ITEPA 2003.


An employee working in Nottingham is told on 5 January 1998 that his job is relocating to London from 1 March 1998. He is offered a relocation package on 26 January 1998 which he accepts. He starts work in London on 1 March 1998.

He continues to live in Nottingham while trying to sell his flat and travels to London every Sunday and returns to Nottingham every Friday. The travel and subsistence expenses associated with this travel are not liable for NICs because they are reasonable costs incurred in relation to the relocation and do not attract a tax charge.

He sells his flat in November 1998 and moves to a new flat in London. All reasonable allowances paid in respect of the move can be excluded from NICs – including any taxable removal expenses – because the relocation package was agreed before 6 April 1998 and the employee started work at the new location before that date.

If the employee had renegotiated the relocation package on or after 6 April 1998, for example in October 1998 to include the cost of redirecting his mail for six months, this additional sum would be liable for Class 1 NICs because it would not be covered by the savings provision and the payment is not an expense which would qualify for tax exemption.