Class 1 v Class 1A

By Tolley in association with Vince Ashall
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The following Employment Tax guidance note by Tolley in association with Vince Ashall provides comprehensive and up to date tax information covering:

  • Class 1 v Class 1A
  • Class 1 and Class 1A

Class 1 and Class 1A

Class 1 and Class 1A are the categories of National Insurance that can be charged on expenses reimbursed and benefits provided to employees. These classes are mutually exclusive. A benefit cannot be subject to both Class 1 and Class 1A NIC. Also, Class 1A is only charged on benefits that are subject to income tax under ITEPA 2003, see CWG5 (2015) Class 1A National Insurance contributions on benefits in kind  page 8, paragraph 4.

There are several ways of providing benefits to employees. How the provision is structured generally determines which class of NIC is due. While having the incorrect structure may not necessarily have an impact on the employer, since the Class 1 and Class 1A rate of NIC are the same, it may have an impact on the employee. This is because Class 1 NIC has an employee as well as an employer contribution. An employee who is paying both tax and NI on a benefit may well question the overall advantage of the benefit.

See Example 1.

The determining factors as to whether Class 1 or Class 1A NIC is due are as follows:

  • who is the contract for the provision of the benefit between?
  • who pays the provider of the benefit?
  • whom does the employer pay regarding the provision of the benefit?

The normal or expected structure is where the employer both arranges with and pays the provider for the benefit. Other

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