NIM13110 – Class 1A NICs: Liability for Class 1A NICs: Relevant payment of earnings

NIM13100 explains that the person liable to pay Class 1A NICs is the person who is liable to pay secondary (employer) Class 1 NICs on the last or only “relevant payment of earnings” to an earner in the tax year in which the benefit is provided.

"A relevant payment of earnings" is a payment of earnings on which Class 1 NICs are due and which is paid in the year in which the benefit is provided. Earnings include any remuneration or profit derived from an employment, see NIM2010.

In the context of identifying whether a relevant payment of earnings has been made, no limit is set on the amount of those earnings. All that is required is for a secondary (employer) Class 1 NICs liability to arise.

For guidance on the relevant payment of earnings test for tax years prior to 2000/2001 see NIM17550.

Genuine cases of directors or employees failing to receive earnings of any description will be rare. It is important to remember that any payment of earnings in the tax year can give rise to a Class 1 NICs liability which will, in turn, identify a secondary contributor for Class 1A NIC purposes. In addition to salary, bonuses or fees, earnings can include:

• round sum allowances, see NIM06160
• income tax liabilities met by the employer, see NIM2370
• an employee's personal bills paid by the employer, see NIM02270
• non-cash vouchers and credit cards use, see NIM02410 and NIM02090.

Where, exceptionally, no earnings are paid but a benefit in kind on which Class 1A NICs would be due is provided, the benefit itself is treated as a relevant payment of earnings. This does not mean that the benefit attracts a Class 1 NICs liability. The benefit is simply treated as a payment of earnings for the purposes of identifying a secondary contributor liable to pay Class 1A NICs

Example

A director is voted dividends by his company. The company also reimburses the director the cost of business calls made from his home telephone and his qualifying travel expenses. The director receives no other earnings but is provided with a car which is used for both business and private purposes.
While no Class 1 NICs liability arises on either the dividends or the payment of the director's business expenses, the car is treated as a relevant payment of earnings. The employer is liable to pay Class 1A NICs in respect of the car.

Where, unusually, an employee has no earnings, liability for Class 1A NICs arises only where the cash equivalent of any benefits provided to the employee amount to £8500 or more, or a proportion of £8500 if the employee was not employed for the whole tax year, see SE20101.