NIM06000 - Class 1 NICs: Expenses and allowances: Overseas allowances
Employers pay a variety of allowances to employees working abroad. Generally, unless they are acceptable business expenses they will be liable for Class 1 NICs.
The following examples outline the NICs position in relation to the more common payments but the list is by no means exhaustive.
Employer meets travel and subsistence costs
If an employer pays for or reimburses expenses, such as hotel accommodation, which satisfy the travel rules because they represent necessary travelling expenses then no NICs will be due. The expenses will be acceptable business expenses which can be excluded from NICs in accordance with regulation 25 and paragraph 3 of Part 8 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (SI 2001 No 1004). See NIM06240 for further information regarding the travel rules.
Employer pays expenses which cannot be receipted
If the employer meets or reimburses expenses which cannot be receipted, they will normally be accepted as business expenses if the employee completes a declaration that they were actually incurred in carrying out the employment. This is the case only as long as there is no evidence to the contrary. If the payments are other than those concerned with business travel they will be excluded by virtue of regulation 25 and paragraph 9 of Part 8 of Schedule 3 to the Social Security (Contributions) Regulations 2001. See NIM05030 for guidance concerning the evidence required to prove business expenses.
Employees receive net pay
If employees receive their pay under a net pay arrangement - that is, they receive gross pay minus a notional sum for United Kingdom tax - NICs are due on the gross pay.
See also NIM02380.
Employer pays an employee a higher salary to compensate for the higher cost of living abroad
If an employer pays an employee a higher salary to compensate for the higher cost of living abroad, NICs are due on the actual gross pay rather than on any notional UK salary.
Employer pays a separate sum to an employee to cover expected additional costs
If an employer pays a separate sum to an employee, sometimes called a “cost of living allowance” or “COLA”, to cover expected additional costs of purchasing certain items, for example food and clothing, these payments are liable for NICs if they cannot be shown to be business expenses. (See NIM05020 for general guidance on what we mean by business expenses).
Employer pays an ‘overseas premium’
If the employer pays an ‘overseas premium’, which may take the form of a bonus for working abroad, NICs are due on the gross pay including the premium.
Employer pays a ‘hardship allowance’
If the employer pays a ‘hardship allowance’ to compensate for working longer hours or for working in difficult conditions NICs are due on the gross pay including the allowance.