Regulation 25 and Schedule 3 to the Social Security
(Contributions) Regulations 2001 provide for certain payments to be
disregarded from liability for Class 1 NICs.
These provisions cater for a range of payments made to an
employee in specific circumstances to be excluded from the
calculation of earnings for NICs purposes. In addition to the
particular exclusions for different types of expenses and
allowances paragraph 9 of Part VIII of Schedule 3 provides for the
exclusion of “any specific and distinct payment of, or
contribution towards, expenses which an employed earner actually
incurs in carrying out his employment.”
The assessment of NIC liability on payments of expenses has
long been an area which has created problems for staff, employers
and accountants.
The majority of cases involving expenses payments are
normally straight-forward and it is usually easy to identify
payments which are specific business expenses.
Situations which have caused problems are usually those where
a payment by an employer covers items which have both a private and
a business element. The most common examples are probably the
payment of home telephone bills and fuel expenses. Where these
payments are involved it often proves difficult to identify the
business and private usage
Some of the exclusions mentioned in this section refer to
similar exclusions provided for income tax. Where a tax exemption
is quoted the relevant tax provision will be shown in its current
form within the Income Tax (Earnings and Pensions) Act 2003 (ITEPA
2003). Where a particular tax exemption preceded ITEPA 2003, the
previous Income and Corporation Taxes Act (ICTA 1988) reference is
given.
Similarly, where cross references are given to existing tax
guidance both the new Employment Income Manual and the previous
Schedule E manual paragraph numbers are shown.
