This example is set out so you know the facts and whether the removal expenses and benefits are eligible for limited tax exemption under section 271 of ITEPA 2003. The commentary shows which benefits and expenses are subject to Class 1 or Class 1A NICs or neither and explains why.
Oliver Robson is relocated to a new job in May 2005. His
employer pays costs incurred or provides benefits within the time
limit prescribed by section 287 of ITEPA 2003, with the exception
of the costs reimbursed in respect of domestic goods, see the table
below.
The employee earns at least £50,000 a year so falls
within the benefits code.
| Removal benefit or expense | Amount (£) | Eligible for
limited tax exemption |
| Legal and estate agent’s fees | 4,500 | Yes |
| Removal costs | 2,500 | Yes |
| Travel costs for visiting new location | 1,700 | Yes |
| School fees for the children of the employee. Employee’s personal bill met by employer. | 4,000 | No |
| Domestic goods purchased by employee to replace items unsuitable for use in the new home. Costs incurred after time limit prescribed in section 287 of ITEPA 2003. | 3,000 | No |
| Landscape gardening provided by the employer – employer contracts | 1,500 | No |
| Total relocation package | 17,200 |
Class 1 NICs are due on the £4,000 paid for school fees. They are not an eligible removal expense, see NIM06145 and NIM06150. The employer has paid the employee’s personal bill. So, the employer has made a payment of earnings for which there are no provisions to disregard the payment from earnings.
The items eligible for the limited tax exemption
are disregarded from earnings for Class 1 NICs purposes under paragraph 2 of Part 8 of Schedule 3 to the SSCR 2001. They are also excepted from Class 1A NICs liability by regulation 40(4) of the SSCR 2001. However, only the first £8,000 of such expenses and benefits are not chargeable to income tax. In this case, the payments total £8,700, so £700 is general earnings chargeable to income tax.
Class 1 NICs are not due on the payments the employer makes to
reimburse the employee the cost of domestic goods. The
reimbursement of the cost is an eligible removal expense and
disregarded from earnings under paragraph 2 of Part 8 of Schedule 3
to the SS(C)R 2001, see
NIM06145. The time limit within which
costs must be incurred to qualify for the limited tax exemption
does not apply to NICs. As the reimbursement is not covered by the
limited tax exemption, the payment is general earnings (section 62
of ITEPA 2003) and is chargeable to income tax. As the
reimbursement is chargeable to income tax but disregarded from
earnings for Class 1 NICs purposes, Class 1A NICs liability will
arise.
The gardening services the employer provided, are
disregarded from earnings under paragraph 1 of Part 2 to Schedule 3
of the SSCR 2001 (see
NIM02090). Such benefits are general
earnings chargeable to income tax under section 203 of ITEPA 2003.
As both the reimbursement for the domestic goods and the
gardening services are chargeable to income tax but disregarded
from earnings for Class 1 NICs purposes, Class 1A NICs liability
will arise on £4,500 (£3,000 + £1,500).
