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HMRC internal manual

National Insurance Manual

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Class 1A National Insurance contributions: Special Class 1A NICs cases: Removal benefits and expenses: Example - Removal benefits and expenses exceed £8,000 limit

ExampleThis example is set out so you know the facts and whether the removal expenses and benefits are eligible for limited tax exemption under section 271 of ITEPA 2003. The commentary shows which benefits and expenses are subject to Class 1 or Class 1A NICs or neither and explains why.

Facts Oliver Robson is relocated to a new job in May 2005. His employer pays costs incurred or provides benefits within the time limit prescribed by section 287 of ITEPA 2003, with the exception of the costs reimbursed in respect of domestic goods, see the table below.

The employee earns at least £50,000 a year so falls within the benefits code.

Removal benefit or expense Amount (£) Eligible for
limited tax exemption    
     
Legal and estate agent’s fees 4500 Yes
Removal costs 2500 Yes
Travel costs for visiting new location 1700 Yes
School fees for the children of the employee. Employee’s personal bill met by employer. 4000 No
Domestic goods purchased by employee to replace items unsuitable for use in the new home. Costs incurred after time limit prescribed in section 287 of ITEPA 2003. 3000 No
Landscape gardening provided by the employer – employer contracts 1500 No
Total relocation package 17,200  

Payments subject to Class 1 NICs Class 1 NICs are due on the £4,000 paid for school fees. They are not an eligible removal expense, see

NIM06145 and NIM06150. The employer has paid the employee’s personal bill. So, the employer has made a payment of earnings for which there are no provisions to disregard the payment from earnings.

Payments neither subject to Class 1 or Class 1A NICsThe items eligible for the limited tax exemption

  • legal and estate agent’s fees
  • removal costs
  • travel costs for visiting new locationare disregarded from earnings for Class 1 NICs purposes under paragraph 2 of Part 8 of Schedule 3 to the SSCR 2001. They are also excepted from Class 1A NICs liability by regulation 40(4) of the SSCR 2001. However, only the first £8,000 of such expenses and benefits are not chargeable to income tax. In this case, the payments total £8,700, so £700 is general earnings chargeable to income tax.

Payments not subject to Class 1 NICs but subject to Class 1A NICsClass 1 NICs are not due on the payments the employer makes to reimburse the employee the cost of domestic goods. The reimbursement of the cost is an eligible removal expense and disregarded from earnings under paragraph 2 of Part 8 of Schedule 3 to the SS(C)R 2001, see

NIM06145. The time limit within which costs must be incurred to qualify for the limited tax exemption does not apply to NICs. As the reimbursement is not covered by the limited tax exemption, the payment is general earnings (section 62 of ITEPA 2003) and is chargeable to income tax. As the reimbursement is chargeable to income tax but disregarded from earnings for Class 1 NICs purposes, Class 1A NICs liability will arise.

The gardening services the employer provided, are disregarded from earnings under paragraph 1 of Part 2 to Schedule 3 of the SSCR 2001 (see NIM02090). Such benefits are general earnings chargeable to income tax under section 203 of ITEPA 2003.

As both the reimbursement for the domestic goods and the gardening services are chargeable to income tax but disregarded from earnings for Class 1 NICs purposes, Class 1A NICs liability will arise on £4,500 (£3,000 + £1,500).