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HMRC internal manual

National Insurance Manual

Class 1B NICs: liability: general procedure

  • employers will contact their local PAYE Tax Office and indicate a wish to operate a PSA.
  • the officer of HM Revenue and Customs (HMRC) and the employer will determine which expenses and benefits will be covered by the PSA for a particular tax year and will sign a formal agreement to that effect (form P626). The agreement can be signed before, during, or for benefits, after the tax year in question as long as it is signed by 6 July.
  • the employer will identify those items which would normally give rise to a Class 1 or Class 1A NICs liability and note that Class 1 and Class 1A NICs will no longer apply to those items.
  • after 6 July in the tax year following the year to which the PSA relates, the employer and the Officer of HMRC will together determine the tax payable under the PSA . The employer will provide all relevant documentation in support of the emoluments covered by the PSA in order to reach agreement of the tax due.
  • once the amount of the tax payable has been agreed, the employer will also agree the Class 1B liability with the officer, based upon the tax payable and the value of the items which would otherwise have been liable for Class 1 or Class 1A NICs (see NIM18060).
  • Network staff will then issue

    • a ‘Notice to Pay’, form P630, detailing the amount of tax payable, and
    • a payment slip.
  • the employer will calculate the total Class 1B NICs and tax due, and send the payment together with the payment slip to HMRC.