The legislation put in place for the assessment and collection
of Class 1B NICs came into effect on 6 April 1999. This means that
for 1999/2000 onwards NICs due on appropriate items included in a
PSA are calculated on a global rather than individual basis in line
with the calculation of tax due.
The text of section 10A of the Social Security Contributions and Benefits Act 1992, is reproduced below and is followed by an explanation of each paragraph.
‘’Class 1B contributions
(1) Where for any tax year a person is accountable to the Inland Revenue in respect of income tax on general earnings of his employees in accordance with a PAYE settlement agreement, a Class 1B contribution shall be payable by him for that tax year in accordance with this section.
(2) The Class 1B contribution referred to in subsection (1) above is payable in respect of
(3) The amount of the Class 1B contribution referred to in
subsection (1) above shall be the Class 1B percentage of the
aggregate of the amounts mentioned in paragraphs (a) and (b) of
subsection (2) above.
(4) General earnings are chargeable emoluments for the purposes of subsection (2) above if, apart from section 6(2A) or 10(8A) above, the person accountable in accordance with the PAYE settlement agreement would be liable or entitled to pay secondary Class 1 contributions or Class 1A contributions in respect of them.
those general earnings shall not be taken to be included in the
PAYE settlement agreement.
(6) In subsection (3) above “the Class 1B percentage” means a percentage rate equal to the secondary percentage for the tax year in question.
(7) The Treasury may by regulations provide for persons to be excepted in prescribed circumstances from liability to pay Class 1B contributions."
Paragraph (1) means that a Class 1B NICs liability will arise where an employer is liable to tax in accordance with a PSA
Paragraph (2) means that Class 1B is payable on
Paragraph (3) means that the amount payable will be calculated
as a percentage of the amounts attracting Class 1 or 1A NICs
liability, and the total (grossed-up) tax under the PSA.
Paragraph (4) means that Class 1B NICs are payable in respect of all items for which the person accountable for tax under the PSA agreement would ordinarily be liable or entitled to pay Class 1 or 1A NICs.
Paragraph (5) (a) and (b) means that where Class 1 NICs were due to be paid before a PSA agreement is made for a year, Class 1 NICs must be accounted for in the normal way, and cannot be replaced by Class 1B NICs.
It is not possible for Class 1A NICs liability to arise before a PSA agreement is in place, because Class 1A liability arises after the end of the tax year, and after the 6 July deadline by which a PSA agreement must be made.
Paragraph (6) means that the percentage rate used to calculate Class 1B NICs is set at the same level as the secondary Class 1 NICs percentage rate.
Paragraph (7) means that in some circumstances, employers may be excepted from Class 1B NICs liability and these exceptions will be prescribed by regulation.