NIM18090 - Class 1B NICs : Liability : Calculation : Why are Class 1B NICs due on the tax paid under a PSA?

Prior to the introduction of PSAs, if an expenses payment or benefit was liable for Class 1 or Class 1A NICs, that liability had to be discharged in the normal way. Where an employer also made arrangements to pay, in a lump sum, any tax due from his employees on those expenses and benefits, payment of the tax was itself a payment of earnings which attracted NICs liability. (See NIM02010 and NIM02015 for guidance on the meaning of “earnings” and liability for Class 1 NICs)

With the introduction of PSAs from 6 April 1996, liability for payment of the tax moved to the employer and in paying it they were discharging their own liability. The payment therefore ceased to attract a liability for NICs from 6 April 1996. When Class 1B NICs were introduced with effect from 6 April 1999, liability for NICs on the tax paid by the employer was reintroduced in order to maintain the level of NICs to ensure that the introduction of Class 1B NICs had a neutral effect on income to the National Insurance Fund.