NIM06020 - Class 1 NICs: Expenses and allowances: Incidental overnight expenses (previously Personal Incidental Expenses or PIEs): Position from 6 April 1995

Regulation 19(1)(s) of the Social Security (Contributions) Regulations 1979

Section 200A of the Income and Corporation Taxes Act 1988

General

Section 200A of the Income and Corporation Taxes Act 1988 (ICTA 1988) was introduced from 6 April 1995 to exclude personal incidental expenses (PIEs) from tax where they satisfy certain conditions. See NIM06015 for guidance on what a PIE is.

From 18 July 1995 legislation (regulation 19(1)(s)) was introduced into the Social Security (Contributions) Regulations 1979 to exclude from Class 1 NICs any PIEs which were able to be excluded from tax by virtue of section 200A ICTA.

As the exclusion was introduced only from 18 July 1995 any payment of PIEs made before that date would attract a liability for Class 1 NICs. It was decided at the time, however, that if arrears arising in the period between 6 April 1995 and 17 July 1995 were discovered then they would not be pursued. This was to align the NICs practice with the tax treatment from 6 April 1995.

With effect from 6 April 1995, therefore, NICs are not due in respect of PIEs which satisfy the conditions in section 200A for tax exemption.

The prescribed maximum

The NIC exclusion is only applicable if the PIEs are paid within prescribed limits. The limit consists of a prescribed maximum. This is:

  • £5 for every night spent away on business within the UK
  • £10 for every night spent away on business outside the UK.

Employees are not required to produce receipts for any amount claimed within the prescribed limits and employers are not required to ask for them.

The prescribed limits must be strictly adhered to and any payment in excess of them will cause the whole amount of the PIE to be subject to Class 1 NICs.

Example 1:

An employee spends 1 night away from home on business in the UK.

The employee is paid £6 to cover PIEs.

The amount paid exceeds the prescribed limit of £5.

The whole £6 is liable for Class 1 NICs.

Aggregation where the employee is away from home for more than one night

The only exception to the nightly prescribed maximum is where:

  • an employee spends more than one night away from home in an unbroken run of consecutive nights, and
  • the aggregate of the expenses does not exceed the prescribed limit.

Example 2:

An employee spends 4 consecutive nights away from home on business in the UK.

They claim £5, £5, £6 and £4 in respect of PIEs.

The amount claimed for the third night is above the £5 limit but the total claimed over the 4 nights is within the limit.

No NICs are payable.

If the aggregate exceeds the prescribed limit for the number of days involved, then thewhole sum will be liable for NICs.

Example 3:

If the total for the 4 days in Example 2 had been £22 then the whole sum would have been liable for NICs.

The aggregation rule can apply only to an unbroken run of consecutive nights away. All consecutive nights must be taken together in determining whether the exclusion applies.For example, a period of 5 consecutive nights cannot be broken up into 4 nights plus one stand alone night.

See NIM06025 for information regarding the exclusion from 6 April 2001 and NIM06026 for information regarding the position from 6 April 2004. NIM06030 provides guidance on the evidence required and this is applicable to all periods from April 1995.