Class 1A National Insurance contributions: Calculating Class 1A NICs: Adjusting the amount of Class 1A NICs due
There are occasions where, prior to calculating the amount of Class 1A NICs due, the global cash equivalent figure, explained at NIM15010, may need to be adjusted. Adjustments are made using the adjustment facility provided at section 4 of the P11D(b).
An adjustment may reduce or increase the cash equivalent figure on which Class 1A NICs are due.
There is no definitive list of the reasons why an adjustment may be necessary but the most common instances are thought likely to be
- Tax already deducted.
Where, in calculating the cash equivalent of a benefit for tax purposes, an amount of tax has already been deducted, the employer will report on the P11D the cash equivalent figure minus the amount on which tax has been deducted. The amount on which tax has already been deducted must be added to the cash equivalent figure reported on the P11D for the purposes of calculating Class 1A NICs.
- Benefits against which there is a fully matching deduction.
Where no dispensation exists, an employer is required to report all benefits on form P11D, including those against which the employee may claim a fully matching deduction – see NIM15500 for more information. As Class 1A NICs are not due on these benefits, the total cash equivalent figure on which Class 1A NICs are due is reduced accordingly. Note, however, that benefits exempt from income tax, including those where the private use is not significant, are not reportable on the P11D, see EIM21613 (before 6 April 2003 – see SE21601).
- The employer is required to submit P11Ds for employees who have no NICs liability. See NIM16401.
- Private element only reported on form P11D. Historically, HMRC has agreed with some employers, under informal arrangements, that they only have to report the private element of a benefit. Where such an agreement exists the employers agree a private/business apportionment of a benefit where it is clear that a section 336 ITEPA 2003 deduction (before 6 April 2003 - section 198 ICTA 1988) would provide relief against the business element. Where this occurs employers must include the amount of the business element of the benefit when calculating their Class 1A NICs liability.
- The employer uses an alternative to the P11D for reporting taxable benefits and expenses or, with agreement from his local tax office, the employer payrolls the benefits he provides, see NIM15003 and NIM15004.
- The employer reports a benefit on the P11D in a box which has no Class 1A NICs indicator, see NIM15005.In each of the above cases the global cash equivalent figure taken from P11D forms will need to be adjusted before the amount of Class 1A NICs can be calculated.