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HMRC internal manual

National Insurance Manual

Class 1A National Insurance contributions: Calculating Class 1A NICs: Fully matching tax deductions

Section 10(7)(b) and 10(7B) SSCBA 92 (before 6 April 2003 – section 10(7) SSCBA 1992)Class 1A NICs are not due on benefits where an employee is capable of receiving a fully matching tax deduction (i.e. cash equivalent of benefit is the same as the available deduction) under any of the following sections of ITEPA 2003. The equivalent ICTA 1988 reference is shown in brackets.

  • Section 336 (section 198) – Deductions for expenses.
  • Sections 343 and 344 (section 201) – Deductions for professional membership fees and annual subscriptions.
  • Section 346 (section 201AA) – Deductions for employee liabilities.
  • Section 351 (section 332(3)) – Expenses of ministers of religion.
  • Section 365 (section 156(8)) – Deductions where benefit provided.
  • Section 376 (section 193(4)) – Foreign accommodation and subsistence costs and expenses.
  • Section 370 (section 194(1)) – Travel costs and expenses where duties performed abroad.
  • Section 373 (section 195(7)) – Non-domiciled employees’ travel costs and expenses where duties performed in UK.
  • Section 377 (sections 50 and 52 of the Finance Act 1989) – Costs and expenses in respect of personal security assets and services. Where a fully matching deduction is available for tax purposes, the employer can reduce the amount on which he pays Class 1A NICs by the amount covered by the deduction. This is achieved by using the P11(D)(b) adjustment facility, see

NIM15300. For examples showing the effect of deductions on Class 1A NICs liability seeNIM15560.

The most common examples will be fully matching deductions available under section 336 ITEPA 2003 (before 6 April 2003 – section 198 ICTA 1988) (business expenses deduction), though this Class 1A NICs rule applies equally to all available deductions shown above.

Detailed guidance on the availability of these deductions and the circumstances in which they are allowed is provided in the relevant sections of the EIM (before 6 April 2003 see the SE manual).