SE12100 - Non-cash remuneration: NIC avoidance

NIC avoidance

Background

Schemes involving payment in non-cash remuneration first appeared after the Upper Earnings Limit on employer's NIC was abolished in 1985. Previously employers had to pay NIC only up to a threshold level of employee cash earnings, but from 1985 employers had to pay NIC on the full amount of cash earnings.

This obligation could be avoided altogether by providing employees with non-cash remuneration and this was the reason for schemes first adopted in the late 1980s.

Consequently NIC avoidance, rather than PAYE avoidance, was the main motivation for employers using these schemes, although employers also sought to avoid the obligation to operate PAYE and thereby defer the date of payment of tax.

Outright tax avoidance is not normally a feature of these schemes - the employee typically returns the non-cash award as a benefit in kind and pays the tax liability under Schedule E, but the payment date can be as much as 21 months after the date on which PAYE would be due on the same payment, and this tax deferral results in a loss of revenue to the Exchequer on the associated interest.

Further guidance on NIC avoidance

For advice on technical and practical handling of the NIC aspects of non-cash remuneration schemes contact PAYE and NIC Directorate, Longbenton.