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HMRC internal manual

National Insurance Manual

Class 1 NICs : Expenses and allowances : Travelling expenses : Disabled employees

Legislation provides for the assistance which an employer gives to a disabled employeeto aid their travel to and from work to be excluded from Class 1 NICs.

Effectively the legislation excludes from a NICs liability any assistance which anemployer gives to an employee for journeys between home and work if that employee isdisabled. For these purposes disabled means that the employee has a physical or mentalimpairment which is likely to have a substantial and long term adverse effect on his orher ability to carry out normal day to day activities. The exclusion applies whether theemployer:

  • provides the means of travel, or
  • meets the cost, or part of the cost, of travel or
  • provides a voucher.

Position to 5 4 2004

The exclusion was originally contained in regulation 19(1)(i) of the Social Security(Contributions) Regulations 1979 and was consolidated into regulation 25 and paragraph6(e) of Part V and paragraph 8(c) of Part X of Schedule 3 to the Social Security(Contributions) Regulations 2001.

Initially regulation 19(1)(i) provided for the exclusion from Class 1 NICs of any paymentwhich an employer made towards the costs incurred by a disabled person in travellingbetween home and work. With effect from 6 April 2001 the wording of the legislation waschanged to reflect its alignment with Extra Statutory Concession (ESC) A59 which exemptedfrom tax ‘home to work’ travel expenses of employees who are disabled.

Position from 6 4 2004

With effect from 6 April 2004 the Social Security (Contributions) Regulations 2001 wereamended in recognition of the coming into force of the Income Tax (Earnings and PensionsAct) 2003 (ITEPA 2003).

Although ITEPA 2003 did not change the meaning of existing tax law, the opportunity wastaken, as part of the tax law rewrite commitment, to provide legislative support for taxexceptions previously provided under cover of extra statutory concessions.

Legislative cover for those items excepted from income tax by virtue of ESC A59 (Home towork travel of severely disabled employees) can now be found at section 246 ITEPA 2003(Transport between work and home for disabled employees: general) and section 266(1) ITEPA2003 (Exemption of non cash vouchers for exempt benefits)

As a consequence the NICs legislation was amended with effect from 6 April 2004 to reflectthe new ITEPA 2003 provisions. The NICs exceptions now contained at paragraph 5(a) of PartV and paragraph 8(c) of Part X of Schedule 3 disregard from earnings:

  • a non cash voucher which is not charged to tax by virtue of section 266(1) if the voucher can be used in respect of the travel costs of a disabled employee, the direct provision of which would be exempt from income tax under section 246 ITEPA 2003
  • a payment made in respect of the travel costs of a disabled employee which is not charged to tax by virtue of section 246 ITEPA 2003.

The changes ensure that full tax and NICs alignment on the treatment of travel payments(including vouchers) to disabled employees is retained.

See SE10080 for further guidance on the application of ESC A59 up to 5 April 2003 andEIM10080 for further guidance on section 246 ITEPA 2003 from 6 April 2003 .

Payments in Kind

Although Class 1A NICs were extended to cover most benefits in kind from 6 April 2000,there is no liability for Class 1A NICs on any payment in kind which satisfies theconditions for tax exemption in section 246 ITEPA 2003. This is in keeping with thegeneral exclusion from Class 1A NICs of any benefit which is not charged to tax as generalearnings. . (See NIM13000 for guidance on the generalprinciples regarding liability for Class 1A NICs.)