National insurance on non-cash earnings

By Tolley
Employment_tax_img2

The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • National insurance on non-cash earnings
  • Class 1 NICs
  • Class 1A NICs
  • Class 1B NICs
  • Exemptions
  • Benefits provided for people under 16 or over state pension age

National insurance contributions are due on a person’s earnings from employment, provided that person is not outside the scope of national insurance which may be due to their age or residence status (see the Overview of NIC Classes, rates and thresholds guidance note).

Class 1 NICs

The usual class of NICs that applies to earnings from an employment is Class 1, which has both an employee and an employer contribution. These are collected throughout the year under the PAYE system (see the Monthly compliance guidance note).

Earnings are defined for the purposes of national insurance as including 'any remuneration or profit derived from an employment (SSCBA 1992, s 3(1)) and for all intents and purposes can be taken as having the same meaning as earnings for the purposes of tax, as defined in ITEPA 2003, s 62. See the Taxation of cash earnings guidance note. The interpretation of the definition of earnings for tax purposes from various court cases also applies to the definition of earnings for NIC purposes. See NIM02010.

For the most part, earnings chargeable to tax under ITEPA 2003, s 62 are cash earnings, but there are two main categories of non-cash benefit that are taxable under that section: one is benefits that have ‘money’s worth’ for the employee (see the Cost to provider and money’s worth guidance note) and the other is when the employer meets the employee’s pecuniary liabilities (see the Contractual and pecuniary liabilities guidance note).

Money’s worth

The ‘money’s worth’ principle is rarely applied in practice. If there is a possibility of a charge under that principle as well as under the benefits code, although the ‘money’s worth’ charge should strictly take priority, HMRC guidance says that there is no need to distinguish the two in practice. This means that a ‘money’s worth’ charge would only arise in the

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