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HMRC internal manual

National Insurance Manual

From
HM Revenue & Customs
Updated
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Class 1A National Insurance contributions: Special Class 1A NICs cases: Beneficial loans: Method of calculating amount of interest: Alternative method: Effect on Class 1A NICs liability

General

NIM16681 explains there are two methods for calculating the amount of interest chargeable to income tax on beneficial loans, the averaging and the alternative methods.

Alternative method notice or election made or issued before due date of payment of Class 1A NICsIf before the date Class 1A NICs are due to be paid (see

NIM13003), either

  • the employee elects, or
  • HMRC issues a notice to an employeeto use the alternative method, calculate Class 1A NICs due on the amount of general earnings calculated chargeable to income tax using the alternative method.

Alternative method notice or election made or issued after due date of payment of Class 1A NICsWhere either

  • HMRC issues a notice as described above; or
  • the employee elects by notice to HMRC to use the alternative methodthe date Class 1A NICs are due to be paid (see

NIM13003), Class 1A NICs are due on the amount of the general earnings calculated using the averaging method.

If the alternative method increases the amounts chargeable to tax, do not re-calculate Class 1A NICs on the earnings calculated using the alternative method.

Alternative method reduces earnings chargeable to income taxSometimes, the alternative method can reduce the amount of earnings chargeable to income tax. If in any such case an employer requests a refund of Class 1A NICs on the difference between the Class 1A NICs due on the earnings calculated using the alternative and averaging both calculation methods, a refund is

  • not due if HMRC had not issued a notice or the employee had not made an election as per section 183 of ITEPA 2003 before the due date of payment of Class 1A NICs;
  • due if HMRC had issued a notice or the employee had made an election as per section 183 of ITEPA 2003 before the due date of payment of Class 1A NICs.

Income tax guidanceFor guidance about the calculation methods see EIM26200 (before 6 April 2003 – SE26200).