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HMRC internal manual

National Insurance Manual

Class 1B NICs: exceptions from liability

Regulation 42 of the Social Security (Contributions) Regulations 2001

Regulation 42 of the Social Security (Contributions) Regulations 2001 [previously regulation 22J of the Social Security (Contributions) Regulations 1979] provides that employers are excepted from liability for Class 1B NICs in respect of employees who remain subject to the social security arrangements of a country, other than the UK,

  • with which there is a reciprocal agreement, or
  • which is another European Economic Area (EEA) member state.

As it may be very difficult or impossible for some employers to identify such employees, and the expenses and benefits which they receive, in order to exclude them from their Class 1B NICs calculations, regulation 42(4) provides for them to be entitled to pay Class 1B NICs in respect of these employees if they choose to do so.

Whether or not it is worth incurring the additional administration costs necessary to identify expenses and benefits provided to such employees is a decision which rests with the employers themselves. In some circumstances they may feel that it is not worthwhile because the NICs savings may be outweighed by the cost of administration. This will, of course, depend upon the composition of the employer’s workforce and the value of expenses and benefits involved.