NIC not due where employee meets cost of benefit in kind

January 11, 2012

The First-tier Tribunal has determined that employer-only NIC (Class 1A) is not payable on benefits in kind where the cost to the employer of providing the benefit is made good by the employee.


Class 1A National Insurance Contributions are payable by an employer on income that is chargeable to income tax but is not subject to Class 1 National Insurance (payable by employer and employee through the payroll).

A benefit in kind gives rise to income tax on the cost to the employer of providing the benefit less the amount made good by the employee. In this case, the full cost was subsequently made good by directors through their loan accounts. This meant that there was no income tax charge since the cost to the employer was zero.

HMRC’s view was that since the amounts were not made good by the due date for payment of the Class 1A amounts, the charge should remain.

The Tribunal took the view that a Class 1A charge can only arise where there is an income tax charge and the fact that the amounts were only made good after the due date does not change that fact.


It is somewhat surprising that this case arose at all. The Tribunal was clear in their view that there was no legitimacy to HMRC’s approach since it would mean that the taxpayer would have to pay Class 1A National Insurance Contributions on a benefit that was not ultimately received.

For further information or to discuss the issues raised, please contact John Mooney on +44 (0)20 3051 5711.


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