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HMRC internal manual

PAYE Settlement Agreements

National Insurance Contributions and PAYE Settlement Agreements:Items liable for Class 1 NICs

An employer’s liability to account for primary and secondary Class 1 NICs arises when payments are made that give rise to a Class 1 liability.

Items attracting Class 1 NICs include

  • reimbursement of late night taxi fares outside section 248 Income Tax (Earnings and Pensions) Act 2003
  • home to normal place of work expenses
  • reimbursement of subscriptions to gyms, sports clubs etc
  • expenses of a spouse occasionally accompanying an employee abroad
  • personal incidental expenses in excess of the statutory daily limit
  • non cash vouchers.

Class 1 NICs are payable as part of the normal monthly or quarterly payment of PAYE, for the period in which liability occurred.

Class 1B NICs replace any Class 1 or Class 1A NICs liability attached to the expenses and benefits included in a PSA for tax purposes.

However where payments attracting Class 1 NICs are made before a PSA is in place or before the particular items are included in the PSA, Class 1 B NICs cannot be substituted for any Class 1 NICs which have already become due for payment in respect of those payments.

For example

On 5th August 2017 a PSA is agreed for tax year 2017/18

The PSA includes an item which would normally give rise to a Class 1 NICs liability, i.e. home to normal place of work expenses

Class 1 NICs were payable on 19th of each month from 19 May 2017 on these payments before the PSA was agreed. Therefore, Class 1 NICs should have already been paid on 19 August 2017 for the tax period ended 5th August 2017.

Class 1B NICs will be payable on any expenses paid from 6th August 2017.

Related Guidance

Further information about which class of NICs applies to an item to be included in a PSA can be found at Appendix 1 in the guide ‘Class 1A National Insurance contributions on benefits in kind’ - CWG5.

See PSA3010 for general information about Class 1B NICs and PSA3020 for details of the legislation.

More detailed information about Class 1B NICs can be found in the National Insurance Manual at NIM18000 onwards