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HMRC internal manual

National Insurance Manual

Class 1A National Insurance contributions: Calculating Class 1A NICs: Partial tax deductions - Examples

The following examples illustrate how the fully matching deduction rule explained at NIM15500 operates. The principles explained extend to any taxable general earnings (before 6 April 2003 – emoluments) that attract Class 1A NICs liability and for which a tax deduction may be available.

Example 1

An employer arranges and pays for hotel accommodation for an employee who is based in London but is required to attend a business meeting in Manchester. The cost of the hotel accommodation is £170. The employee is taxable on the amount of the hotel cost but a section 337 ITEPA 2003 (before 6 April 2003 – section 198 ICTA 1988) deduction is available for the full cost of the accommodation, see EIM31615 (before 6 April 2003 - SE31615). As a fully matching deduction is available, Class 1A NICs are not due on the cost of the provided hotel accommodation.

Example 2

An employer arranges and pays for hotel accommodation for an employee who is required to attend a series of business meetings in Manchester from Monday to Thursday. The employer also arranges for the employee to remain at the hotel on holiday for the weekend. The total cost to the employer is £1,000.

As the benefit provided is used for both business and private purposes, a fully matching deduction is not available and Class 1A NICs are due on the full amount, i.e. £1,000.

Example 3

A director has use of her employer’s helicopter for both private and business journeys. The helicopter is available for the whole of the 2006/07 tax year. The director is allowed unlimited private use of the helicopter, which is estimated at 30% of its entire use. When provided the helicopter had a market value of £100,000.

The cash equivalent of the benefit is calculated as follows

Annual value calculated under section 205 of ITEPA 2003 (see EIM21645) (20% x £100,000) + £25,000 (for services, fuel, repairs, etc.) £45,000
The cash equivalent of £45,000, reported on the P11D, is the amount on which Class 1A NICs are due. The employee is entitled to a deduction of £31,500 (£45,000 x 70%) from the cash equivalent to reflect the use in carrying out the duties of the employment. The reduction in the tax charge on the employee to £13,500 (£45,000 x 30%) does not affect the amount of Class 1A NICs due.