SE12101 - Non-cash remuneration: NIC legislation

Non-cash remuneration – is it “earnings”?

Earnings – overview of the NIC legislation

Section 1 of the Social Security and Contributions and Benefits Act 1992 (SSCBA92) provides that NIC should be paid by earners, employers and others.

There are four classes of NIC - Class 1 NIC are earnings related and are made up of two types:

• primary Class 1 contributions payable by employed earners and
• secondary Class 1 contributions from persons paying earnings.

Class 1 primary and secondary contributions must be paid “ where… earnings are paid to or for the benefit of an earner in respect of any one employment…”.

What is included in “earnings”?

Earnings are defined in Section 3 as “any remuneration or profit derived from an employment”, but Regulation 19 Social Security (Contributions) Regulations 1979 provides that certain payments are excluded from earnings.

In particular any payment in kind is excluded from being earnings (Regulation 19(1)(d)). The definition of a payment in kind for NIC is broadly equivalent to the Schedule E definition of a benefit in kind.

However, the exclusion from earnings for payments in kind does not include any payment which confers a beneficial interest in any asset falling within Schedule 1A to these regulations (Regulation 19(5)).

In Tullett & Tokyo Ltd v Secretary of State, the High Court held that premia paid by a life assurance provider to life policies held in the name of employees of Tullett & Tokyo were not earnings for NICs. As a result the Revenue has accepted that premia paid to life assurance policies before 1 October 1998 were not subject to NICs. From that date such premia payments were included in the definition of readily convertible assets (see SE11840) and consequently subject to NICs.

The Tullett & Tokyo decision has no effect on the Revenue’s belief that PAYE should apply to premia paid to life assurance policies if there was a pre-existing entitlement to a monetary amount (see SE12002) and the premium was paid to satisfy that entitlement.

Assets in Schedule 1A

Part 1 of Schedule 1A lists assets which are not payments in kind and which must therefore be included in a person’s earnings subject to NIC. These include shares, investment units, options, assets capable of sale on a recognised investment exchange and assets for which trading arrangements exist. See the report of the NMB Holdings Ltd NICs case in SE12012.