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HMRC internal manual

National Insurance Manual

Class 1A National Insurance contributions: Calculating Class 1A NICs: Amounts made good by the employee: General

 

 

For some benefits in kind the cash equivalent of the benefit, i.e. the amount of general earnings chargeable to income tax under ITEPA 2003, may be reduced by the employee making good an amount to the person at whose cost the benefit was provided. If it is reduced it may affect the amount on which Class 1A NICs are due. For the tax treatment of making good please see EIM21119.

Making good is where an employee gives something in return for being provided with a benefit.

An employee may make good the cost of a benefit by
 

  • a direct payment
  • by a deduction from salary
  • by a debit to the director’s loan account.

Where
 

  • an employee makes a payment towards the cost of a benefit, and
  • the amount made good reduces the cash equivalent of the benefit, and
  • the employee makes the making good payment before the Class 1A NICs are due to be paid

Class 1A NICs are due on the same amount of earnings chargeable to income tax.
 

Example

Employee is provided with the use of an employer’s asset for several months in the 2016-17 tax year.

The amount of earnings chargeable to income tax under ITEPA 2003 before any making goods payments £2,500.

The employer and employee agreed at the start of the 2016-17 tax year that no later than the end of the tax year, the employee would pay £500 towards the cost of using the employer’s asset.

On 1 April 2017 the employee pays £500 to the employer.

The amount of earnings chargeable to income tax is reduced to £2,000.

The amount of earnings subject to Class 1A NICs is £2,000.

From the 2017/18 tax year most non-payrolled benefits in kind for tax purposes must be made good by 6 July following the tax year of the provision of the benefit. For further details about making good for tax purposes see EIM21119. A making good payment by 6 July will also automatically remove or reduce the Class 1A NICs liability.

 

Making good payments made after Class 1A NICs were due

See NIM15211 which explains the effect making good payments have on Class 1A NICs if paid after Class 1A NICs were due.