NIM04002 - Class 1: Avoidance - Background

From October 1985 the upper earnings limit see NIM01000 for employers was abolished. This meant an immediate increase in employer costs for those employees earning above the upper earnings limit. Employers and their accountants realised that they could avoid liability for NICs by making payments to their employees in kind see NIM13050 rather than in cash.

By relying on regulation 19(1)(d) SSCR 1979 (now Schedule 3 – Part 2 SSCR 2001) employers could make partial payments of earnings, usually bonuses other than in cash, without attracting liability for NICs.