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HMRC internal manual

National Insurance Manual

Class 1A National Insurance contributions: Liability for Class 1A NICs before 6 April 2000: Need for a relevant payment of earnings to have been made: General

Section 10(2) SSCBA 1992Before the extension of Class 1A NICs to most taxable benefits from 6 April 2000, liability for Class 1A NICs arose only on the provision of cars and car fuel benefits chargeable to income tax under sections 157 and 158 of ICTA 1988, see


One of the conditions which had to be satisfied for a Class 1A NICs liability to arise was the identification of a secondary contributor to meet the liability. This was achieved by requiring a payment of earnings liable for Class 1 NICs to have been made by the employer providing the car.

The payment of earnings had to have been made in the same tax year as the car was provided. It did not matter when in the year the earnings were paid or the extent of those earnings. Providing that a liability for Class 1 NICs existed, the relevant payment of earnings test was satisfied.

Although in the vast majority of cases this condition was satisfied, a small number of cases arose where it was alleged that no earnings had been paid. Most cases involved cars provided to directors who were either

  • directors of small companies who were not drawing earnings of any description from their companies or
  • directors whose only source of income was dividend payments from their shareholding in the company.As a payment of earnings was needed to provide a secondary contributor and dividends do not attract a NICs liability, see

NIM02115, the payment of Class 1A NICs on the provided cars in both cases could be avoided.

The former Contributions Agency issued detailed guidance to its staff on the cases, emphasising the need to undertake detailed investigations where it was claimed that no earnings had been paid.

The guidance looked at various ways in which a director could receive earnings, including situations where the company providing the car was associated with a company which was paying the director.

Section 52 Social Security Act 1998 and section 10(2)(b) SSCBA 1992 – Position from 6 April 1998!n 1998 legislation was introduced which closed this avoidance route. The legislation deemed the provided car to be earnings solely for the purposes of identifying the necessary secondary contributor.

Where outstanding Class 1A NICs are discovered in respect of car and fuel benefits provided in tax years prior to 6 April 2000 and it is alleged that no payment of earnings was made the following guidance should be consulted

  • NIM17552 – for tax years 1991/1992 to 1997/1998
  • NIM17553 – for tax years 1998/1999 to 1999/2000.For tax years 2000/2001 onwards see


The guidance given at these references applies equally to directors and employees, although where it is claimed that an employee received no earnings, a liability for Class 1A NICs can only arise where the employee is within Part V Chapter ll ICTA 1988, see SE20005.