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HMRC internal manual

National Insurance Manual

From
HM Revenue & Customs
Updated
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Class 1B NICs: liability: what if class 1 or class 1A liability arises before the PSA is formally agreed?

The payment of Class 1B NICs replaces the payment of primary and secondary Class 1 NICs and the payment of Class 1A NICs. But a liability for Class 1B NICs can only replace a liability for Class 1 or Class 1A NICs which has not yet become due for payment.

This means that if a PSA is agreed before the due date for the payment of the Class 1 or Class 1A NICs then the Class 1 or Class 1A liability is replaced by a liability for Class 1B NICs. The due date for payment of Class 1 NICs is the 19t h of the month and for Class 1A NICs it is the 19t h July following the end of the tax year. If the PSA is agreed later than these dates, the original Class 1 or Class 1A liability will stand.

The following examples illustrate this principle more clearly.

Example 1

  • PSA for 2004/05 tax year.
  • Agreement entered into on 27.8.2004.
  • PSA includes items which would normally give rise to a Class 1 liability.

Class 1 NICs should have been paid on 19t h of each month from 19t h May 2004.

Class 1 should therefore already have been paid to 19.8.2004 when the PSA was agreed.

Class 1B NICs are payable only from 20.8.2004 - that is, from the date from which the Class 1 NICs have not yet become payable.

Class 1 NICs will cease to be payable from 20.8.2004.

Example 2

  • PSA for 2004/05 year.
  • Agreement entered into on 7.4.2004.
  • PSA revised 27.8.2004 to include additional items which would normally give rise to a Class 1 NICs liability.

Class 1 NICs should have been paid on 19t h of every month from 19t h May 2004.

Class 1 should therefore already have been paid to 19.8.2004 on the items not covered by the PSA prior to 27.8.2004.

Class 1B NICs are payable only from 20.8.2004 in relation to the additional items which would otherwise give rise to a Class 1 NICs liability and which are included in the PSA from 27.8.2004.

Class 1B NICs are payable for the whole year on any items which would normally have given rise to a liability for Class 1 NICs and which were included in the PSA on 7.4.2004.

Example 3

  • PSA for 2004/05 tax year.
  • Agreement entered into in June 2005.
  • PSA includes a number of benefits which would normally give rise to a Class 1A NICs liability for the whole tax year.

As Class 1A NICs are not due for payment until 19t h July 2005 Class 1B NICs will be payable for the whole year instead of Class 1A.