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HMRC internal manual

National Insurance Manual

Class 1 NICs : Expenses and allowances : Relocation allowances : Special provision for 1998/99 where relocation expenses included in a PAYE Settlement Agreement (PSA)


Many employers account for tax on relocation packages through a PAYE SettlementAgreement (PSA). This allows them to account for the tax in a lump sum after the end ofthe tax year and avoids them having to enter into detailed administrative arrangements toreport the individual sums involved.

PSAs were introduced in April 1996 but legislation to align the NICs treatment of itemsput through a PSA was not introduced until 6 April 1999. It was not possible to introducethe legislation earlier as it needed primary legislation. Before the necessary NICslegislation could be introduced an employer was required, for NICs purposes, to identifythe precise amounts payable to individual employees and to account for these through thepayroll at the time of payment. This was very onerous compared to the PSA arrangements.

When the legislation was introduced to align the treatment of relocation expenses from 6April 1998 it was known that the NICs treatment of items included in a PSA for tax was tobe aligned with the tax treatment from 6 April 1999. It was therefore felt to beunreasonable to expect employers to set arrangements in place just for the 1998/99 year toaccount for the NICs on the taxable allowances. The arrangements would be needed only forthe 1998/99 year because from April 1999 the employer would be able to pay a global amountof NICs in respect of all taxable expenses after the end of the tax year in similar mannerto the tax on the PSA.

Special exclusion for relocation expenses included in a PSA

An additional provision was accordingly introduced to exclude from Class 1 NICs anytaxable expenses included in a PSA for the 1998/99 year.

The original provision was included in regulation 19(1)(zc)(iii) of the Social Security(Contributions) Regulations 1979 and it continues in force in relation to any paymentsarising in relation to 1998/99 but which might not yet have been identified.

Although many taxable expenses will satisfy the criteria for inclusion in a PSA becausethey will be minor, irregular or are such that it would be impracticable for an employerto identify them and put them through the payroll, some allowances will not meet thesecriteria. See NIM18000 for general information about PSAs andNICs.

Additional housing cost allowances (AHCA) or mortgage subsidies – usually paid toemployees who move to a more expensive location – are usually paid over a substantialperiod of time, regularly and together with other pay. They will not generally satisfy thecriteria for inclusion in a PSA and they will not, therefore, be excluded from NICs byvirtue of the special provision introduced for 1998/99. Nor will they be capable of beingexcluded from NICs from 6 April 1998 under the relocation alignment provision since theyare taxable expenses.

You may encounter instances where AHCA payments are genuinely irregular in nature and aredeemed to be suitable for inclusion in a PSA. If you are in any doubt about whether or notan allowance should be in a PSA make enquiries to find out why the payment has beenincluded so that a consistent approach is adopted for both tax and NICs.