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HMRC internal manual

National Insurance Manual

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Class 1A National Insurance contributions: Liability for Class 1A NICs: Conditions to be satisfied for liability to arise: Benefit provided from, or by reason of, the employment

Section 10(1)(b) SSCBA 1992

Benefits provided from or by reason of the employmentFor Class 1A NICs liability to arise the benefit must be provided to an employed earner from, or by reason of, his employment.

In most cases it will be the employer who is meeting the cost of providing the benefit and the condition that the benefit must be provided from, or by reason of, the employment will be satisfied.

Full guidance on both of these tests is contained in the Employment Income Manual at

  • EIM00600 onwards for “from the employment” (before 6 April 2003 – see SE00600 onwards)
  • EIM20501 onwards for “by reason of the employment” (before 6 April 2003 – see SE20501 onwards) That guidance applies equally for the purposes of Class 1A NICs.

Benefits not provided by reason of the employment If a benefit is provided and it is not from or by reason of the employment, there can be no Class 1A NICs liability. Subject to one exception, all sums paid to an employee by his employer in respect of all benefits provided for him by his employer (section 201(3) ITEPA 2003; before 6 April 2003 - section 168(3) of ICTA 1988) are deemed to be made or provided “by reason of the employment”.

The one exception is when the employer is an individual and he can show that the payment was made or the benefit was provided in the normal course of his domestic family or personal relationships. So, a father who employs his son will normally be able to show that a Christmas present he gives to his son is not “by reason of the employment”. Section 201(3) ITEPA 2003 refers (before 6 April 2003 – section 168(3) ICTA 1988).