NIM14600 - Class 1A NICs: Exemptions from Class 1A NICs liability: Cash payments exempt from Class 1A NICs liability

Section 10(9)(a) SSCBA 1992 and Regulation 40(2),(3),(4) and (6) SS(C)R 2001

The scope of the legislation extending Class 1A NICs liability to all benefits in kind automatically catches any general earnings, or something treated as general earnings, which is chargeable to income tax under ITEPA 2003 if there is no existing Class 1 or Class 1B liability, see NIM13090.

This means that items that do not attract a Class 1 NICs liability because they have been specifically excluded from Class 1 NICs but which are, or are treated as, general earnings chargeable to income tax under ITEPA 2003 have the potential to attract a Class 1A NICs liability by default.

It is worth noting here that liability for Class 1A NICs on something which is not general earnings , or not treated as general earnings , can only arise if the item is specifically legislated into Class 1 NICs liability. At present there are no such items.

To avoid Class 1A NICs being payable on cash payments which have been excluded from Class 1 NICs but which nevertheless are general earnings for tax purposes, regulations have been introduced to specifically exclude such payments from Class 1A NICs liability. The most common examples include:

• pension payments and pension contributions
• payments by way of redundancy
• payments or contributions towards specific and distinct expenses incurred by an employee in carrying out his employment. Note that these are business expenses disregarded when calculating earnings on which Class 1 NICs are due. The equivalent Class 1A NICs rules for business use of a benefit are explained at NIM15500
• certain shares and share options
• certain retirement benefit schemes.

A full list of the cash payments excluded from Class 1A NICs is contained in the table at NIM14610.