NIM06025 - Class 1 NICs : Expenses and allowances : Incidental overnight expenses (previously personal incidental expenses or PIEs) : Position from 6 April 2001

Regulation 25 and paragraph 1(2) of Part V and paragraph 4 of Part X of Schedule 3 to the Social Security (Contributions) Regulations 2001

Section 240 of ITEPA 2003 (before 6 April 2003 - section 200A of ICTA 1988 ) - the tax provision relating to the exclusion of incidental overnight expenses (IOEs) from tax – requires that where a person receives IOEs in more than one form the value of the different elements must be added together to determine whether the prescribed limit has been exceeded.

This provision was not mirrored in the NICs legislation in 1995 as it was not necessary at that time because most payments in kind were not subject to NICs. With the extension of Class 1A NIC liability to most benefits the position has changed and legislation has therefore now been introduced to fully align with the tax position. From 6 April 2001 where an IOE is provided in more than one form the various elements must be added together to decide whether the IOE is below the prescribed maximum. Only if the total is below the maximum permitted is it exempt from NICs liability.

See NIM06015 for information about what a IOE is, and NIM06020 for general guidance relating to the prescribed limit and how to apply it.

If the total IOE per night away is above the prescribed maximum NICs will be due on the whole amount. The maximum is currently £5 for each night away in the UK and £10 for each night away outside the UK.

Example

An employee stays away from home overnight elsewhere in the UK for 4 nights.

The employer arranges his accommodation and pays his hotel bill – including £12 for laundry services.

The employer also gives him a cash allowance of £3 per night to cover other incidental expenses.

The employee has received the value of £24 which consists of
  • the benefit of £12 for laundry services
and
  • cash amounting to £12.
The average received per night away is £6. As this exceeds the £5 limit the exemption will not apply. NICs will be due on the full amount of £24.

Where a IOE fails to meet the conditions for exemption the Class of NICs will depend upon how the IOEPIE is provided:

  • any payment in cash, cash voucher or non-cash voucher, or by means of a credit token will attract a Class 1 liability.
  • any provision by means of a benefit in kind will attract a Class 1A liability.

In the above example the £12 cash allowance will be liable for Class 1 NICs and the £12 paid by the employer for laundry services will be subject to Class 1A NICs.

See

  • EIM02710 (before 6 April 2003 – see SE02710) for further guidance on section 240 ITEPA 2003 and the treatment of IOEs;
  • NIM06020 for information regarding the position before 6 April 2001;
  • NIM06030 for guidance on the evidence required to check that the payments or benefits are IOEs; and
  • NIM14100 and NIM16200 for guidance on the Class 1A NICs position.