NIM02020 - Class 1 NICs : Earnings of employees and office holders : Payments excluded from liability

Regulation 25 and Schedule 3 of the Social Security (Contributions) Regulations 2001

Some payments of earnings may be excluded from liability for Class 1 NICs. Regulation 25 of the Social Security (Contributions) Regulations 2001 and Schedule 3 to those Regulations provide that certain payments “are to be disregarded in the calculation of earnings from employed earner’s employment for the purpose of earnings-related contributions”.

The most common payments which fall to be excluded from earnings for Class 1 NICs purposes are:

• acceptable business expenses (see NIM05020)
• most payments in kind
• provision of services or other facilities
• provision of board or lodging.

Some payments which are excluded from liability for Class 1 NICs may attract a Class 1A liability. See NIM13000 for general principles in respect of Class 1A liability.

Some payments in kind are not excluded from earnings for Class 1 NICs. These are mainly those detailed in Parts III, IV and V of Schedule 3 to the Social Security (Contributions) Regulations 2001.