EPAPP7b - Modified Class 1 National Insurance Contributions (NICs) for employees assigned from the United Kingdom (UK) to work overseas

Application for Modified NICs for Expatriate Employees from 6 April 20__


Employer Name: ………………………………………………………………………………..
Employer Address: ………………………………………………………………………………..
………………………………………………………………………………..
…………………………………………………………………………………
Employer PAYE reference: …………………………………………………………………………………

Part 1 – Scope of Agreement

  1. This application applies only to those employees who

  1. are employed by a UK employer and are assigned to work abroad for a period of limited duration, but for more than a complete tax year

  2. have an ongoing liability to UK National Insurance contributions (NICs) whilst abroad

  3. earn above the upper earnings limit in every earnings period throughout the tax year (I understand that it shall not invalidate this agreement if an employee earns less than the upper earnings limit in the pay period they join the company, or in the pay period in which they leave, if in all other pay periods during the year, the upper earnings limit is exceeded. However, in the case of employees with annual pay periods, to be within the agreement, their earnings must exceed the annual upper earnings limit)

  4. are not resident and ordinarily resident for tax purposes and not liable to UK tax on their earnings from employment

  5. receive some earnings and benefits derived from the employment from sources other than the UK employer.

Part 2 - Operation of Agreement

  1. We will calculate and pay Class 1 NICs on a best estimate of those elements of the remuneration package that attract Class 1 NICs. At the beginning of each year (or at the beginning of the assignment, if that is later) we will prepare the best estimate. The best estimate will include all world-wide earnings paid from whatever source, including where relevant, annual salary, any cash bonus awards made to 5 April, and any non-cash benefits that attract Class 1 NICs liability.

  2. We will undertake an in-year review during the period December to 5 April to take account of any material changes in respect of the remuneration package that attract Class 1 NICs, and in particular, to ensure that:

  1. relevant bonuses are accounted for; and

  2. NICs due on gains from share or securities options, and awards of securities or shares at undervalue, are accounted for.

We will update the estimated Class 1 NICs payable immediately following the review.

Part 3 - Payment of Estimated NICs

  1. We undertake to pay to HM Revenue and Customs (HMRC) each month, the Class 1 NICs due on 1/12th of the total estimated earnings for the tax year. These payments will be made each month by the 19th or 22nd of the following month (depending upon our payment method).

  2. Where the number of employees covered by this arrangement at any one time is 5 or fewer, we undertake to pay the Class 1 NICs due on 3/12ths of the total estimated earnings for the tax year, on or before the 19th or 22nd (depending upon the payment method) of July, October, January and April (the quarterly basis).

  3. If the number of employees covered by this agreement increases to more than 5 at any one time in the course of the year, and is likely to remain at the higher level, we will make payments of estimated Class 1 NICs by the 19th or 22nd of each month from the start of the following year. If the number of employees covered by this agreement at any one time reduces to five or fewer in the course of the year, and is likely to remain at the lower level, we will make payments of estimated Class 1 NICs on the quarterly basis from the start of the following year.

Part 4 - Arrivals and Departures

  1. We will notify HMRC of our intention to include any new employees entering the agreement by providing details of the employees’ departures from the UK. Similarly we will notify HMRC of our intention to exclude an employee from the agreement by providing details of the employee’s return to the UK. We will make these notifications to HMRC in writing by the end of the relevant tax year.

  2. We accept that in cases where an employee is repatriated to the UK before he/she has been overseas for a complete tax year and, as a result, his/her general earnings from the employment become chargeable to UK Income Tax, this agreement will no longer apply to that employee. In such cases, we will cease to use estimates in respect of all earnings paid and benefits received after the employee has returned to the UK, and use the statutory basis of calculating and returning both Class 1 and Class 1A NICs. We will carry out an exercise before the end of the tax year, to establish the correct amount of the earnings in the period covered by our earlier estimate and record these on the P11 Deductions Working Sheets or equivalent. We will submit a completed Employer Annual Return showing the correct earnings in accordance with the P11 Deductions Working Sheets or equivalent and send it in time to reach our HMRC office by 19 May following the end of the tax year. Forms P60 will be given to the employees by 31 May after the end of each tax year. The Employer Annual Return in accordance with the P11 Deductions Working Sheets will show the correct Class 1 for the tax year. If the correct figures for Class 1 NICs exceed our earlier estimates, we will pay the balance to HMRC with our final payment for the year. Where Class 1A becomes payable, we will make a return P11D(b) and pay Class 1A by 19th July following the end of the tax year.

Part 5 - Employer Annual Return

  1. For employees within this agreement, we will submit a completed Employer Annual Return in accordance with the P11 Deductions Working Sheets or equivalent and send it in time to reach our HMRC office by 19 May following the end of the tax year. Forms P60 will be given to the employees by 31 May after the end of each tax year. Where an employee leaves the UK part way through a tax year, we will calculate Class 1A NICs payable to the date the employee left the UK, make a return P11D(b) and pay Class 1A by 19th July following the end of the tax year.

  2. We accept that, due to the inherent nature of the modified arrangements, over- and underpayments of Class 1 NICs may arise compared with the amount of Class 1 NICs that would otherwise have been due if normal NICs procedures had been applied. Provided that the procedures outlined in these arrangements are followed, interest will not be charged in accordance with the NICs regulations in respect of any residual Class 1 NICs liabilities as shown by the employer’s ‘NIC Settlement Return’ – See Part 8. However, it is accepted that interest will run on any part of the estimated NICs due to have been paid under this agreement which (depending upon the method of payment) reaches HMRC after the 19th or 22nd of April following the end of the tax year.

Part 6 - Impact of Inland Revenue Dispensation

  1. We accept that the terms of a dispensation will not apply to employees who do not have a ‘taxable employment’ as defined in Part 2 ITEPA 2003. Therefore the ‘best estimate’ will reflect the total amount of earnings liable to Class 1 NICs taking into account any payments that can be disregarded from Class 1 earnings under the provisions of Regulation 25 and Schedule 3 of the Social Security (Contributions) Regulations 2001.

Part 7 - Class 1A NICs

  1. We understand that any benefits provided to employees within this agreement should not fall to be chargeable to income tax under ITEPA as ‘general earnings’; therefore, liability for Class 1A NICs will not arise.

Part 8 - Payment of Residual Class 1 NICs Liability - NIC Settlement Return

  1. Before 31 March following the end of the tax year we will carry out an exercise to establish the correct amount of Class 1 NICs due on all the employee’s earnings, both from the UK and from abroad. We will calculate and pay Class 1 NICs on the difference between the correct figures for the year and those figures that we submitted to HMRC on our Employer Annual Return. Payment of the Class 1 will be made by 31 March following the end of the tax year. Any additional Class 1 NICs payable will be shown on our ‘NIC Settlement Return’. The NIC Settlement Return will be returned to HMRC by 31 March following the end of the tax year.

  2. We accept that where the additional Class 1 NICs found to be due is paid after 31 March following the end of the tax year, or errors in the NIC Settlement Return are discovered, interest and penalties will be charged in accordance with legislation.

  3. We will set out in the NIC Settlement Return the additional earnings and benefits and identify those chargeable to Class 1 NICs.

Part 9 - Overpaid Class 1 NICs

  1. We understand that, if we discover that Class 1 NICs have been overpaid in relation to the ‘best estimate’, we can complete the NIC Settlement Return to reflect any secondary (employers) Class 1 NICs overpaid. We can also claim a refund of any primary (employees) Class 1 NICs overpaid on the best estimate but only where

  1. the Class 1 NICs were paid by the employer and have not been recovered from the employee, or

  2. the Class 1 NICs are paid by the employer and recovered from the employee, and then only if the employee mandates the repayment to the employer in writing.

  1. We understand that, to claim the overpayment, the NIC Settlement Return must be submitted together with an application for a refund. This will be passed to HMRC Refunds Group for processing. We understand that under this agreement, we cannot recover overpayments by deducting the amounts from future payments to HMRC or offsetting overpayments in respect of one employee against underpayments in respect of another employee. We will not submit minus or negative P14 returns.

Part 10 - Statement

  1. We acknowledge that HMRC reserve the right to review / cancel these arrangements as a result of changes in the law, or should operational difficulties arise, or the arrangements are seen to be deficient, for example:

  • where significant and/or regular underpayments of Class 1 NICs have arisen in respect of one or more employees and, in the opinion of HMRC, the Class 1 NICs ought to have been accounted for in the calculation of the estimated Class 1 NICs provided for under these arrangements

  • where an employer fails to pay the Class 1 NICs on time and/or to ensure that returns are filed on time such that a liability arises to pay interest and/or penalties.
  1. We accept that, if a decision is made by HMRC to cancel these arrangements, HMRC will require the strict operation of the payment of Class 1 NICs. Similarly, we reserve the right to cancel these arrangements and adopt the strict operation of Class 1 NICs.

  2. We agree that a separate employer record will be opened with HMRC for this scheme in the name “[Company Name] (EP Appendix 7B)” under which we shall submit the NIC Settlement return.

  3. Cancellation by either party will be confirmed by written notice and will be effective from the following 6 April, or such earlier date as is agreed by the parties. If a date cannot be agreed, cancellation will be effective on the earlier of the aforementioned 6 April or 3 months from the date when the written notice was given.

Application made by:


Name: ……………………………………………………………………
Capacity: ……………………………………………………………………
Signature: ……………………………………………………………………
On behalf of (name of employer): ……………………………………………………………………
Date: ……………………………………………………………………

Application agreed on behalf of HM Revenue and Customs


Name: …………………………………………………………………..
Signature: …………………………………………………………………..
Date: …………………………………………………………………..


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