This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

National Insurance Manual

Class 1A National Insurance contributions: Liability for Class 1A NICs: Identifying whether a benefit has been provided: Establishing the contractual arrangements

In the majority of cases the identification of Class 1 NICs earnings or Class 1A NICs benefits is straightforward, see NIM13171. Class 1 NICs earnings normally take the form of cash, or cash equivalents like vouchers or credit or debit card use, whilst Class 1A NICs benefits are something other than cash.

The usual way of identifying whether a benefit has been provided is to establish ownership of the item immediately before the employee receives it. Again, this is normally straightforward. An employer who owns a car and allows his employee to use it, is providing a benefit. Equally an employer who owns a television and then transfers ownership of it to the employee has supplied a benefit. But an employer who

  • reimburses an employee the cost of a television; or
  • gives an employee cash to purchase a car; or
  • provides an employee with something other than cash to make a purchase, for example, a credit card, fuel agency card or vouchers, and the employee does not make purchases or pay for services as the employer’s agent (see NIM02193)the employer has made a payment of cash or cash equivalent which must be added to any other earnings paid in the same earnings period when calculating Class 1 NICs liability.

Remember though, that some benefits have been specifically regulated into Class 1 NICs liability and are not disregarded as benefits in kind, seeNIM04002 onwards.

Generally, the most important consideration in identifying ownership is to establish who it is that makes the contract with the supplier to purchase or supply the item. Where it is the employer, the item will normally be a benefit. Where the employee makes the contract and the employer pays for the item or reimburses the employee the cost, it will be Class 1 NICs earnings which should be added to any other earnings paid in the same earnings period when calculating Class 1 NICs liability.

Less easy to establish are cases where it appears that an employer is meeting a personal expense, normally referred to as a pecuniary liability, incurred by an employee but it is argued that a benefit is being provided. In these cases it is necessary to check the contractual arrangements in place for the purchase. In some cases investigations will reveal that the contract to provide or supply an item is with the employer and renders what has been provided to the employee a benefit on which Class 1A NICs are due. In other cases, the employee will have contracted to purchase the item and the employer will be meeting the employee’s personal expense, a pecuniary liability, and Class 1 NICs will be due. This is best illustrated by way of an example.


An employee arranges for his home telephone bill to be paid by his employer. The contract to supply the telephone line is between the employee and the telephone provider. In meeting his employee’s home telephone bill, the employer is meeting the employee’s personal expense (pecuniary liability) and a payment of earnings on which Class 1 NICs are due has been made.

If, on the other hand, an employer contracts directly with the telephone provider to install a telephone line in the employee’s home and then meets the cost of the bills, the employer is providing a benefit. The contract is between the line provider and the employer. The employer is providing the employee with a benefit, the service of a telephone, and Class 1A NICs are due.
For guidance on the NIC treatment of pecuniary liabilities see


For guidance on the income tax treatment of pecuniary liabilities see EIM00580.

Employees or directors authorised to make contracts on behalf of the employerWhen considering the contractual arrangements that exist, if it is alleged that when an employee made a purchase or paid a bill, that he was authorised to do so on behalf of the employer, see

NIM02193 for further guidance to help you decide whether a payment in kind was provided or not.

Cases of doubtSee

NIM13190 where you have doubts about what is provided.