NIM15211 - Class 1A National Insurance contributions: Calculating Class 1A NICs: Amounts made good by the employee: Making good payments reduce earnings chargeable to income tax: Effect on Class 1A NICs liability

Section 10 of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992)

Class 1A NICs liability in respect of a benefit follows the tax treatment of the benefit. That is, NICs liability follows the tax charge imposed on the benefit. The wording of section 10 SSCBA 1992 means that the NICs liability is wholly dependent on the tax charge. The tax charge depends on the particular benefit.

Making good simply means giving something in return for the benefit. Guidance on what this means is in EIM21120.

The tax charge on a benefit is normally linked to the cost of the benefit less any part of that cost made good by the employee to the person providing the benefit. When the employee makes good, the taxable value of the benefit is reduced by that amount. Accordingly, the amount liable for Class 1A NICs is also reduced by the same amount.

Benefit provided from the 2017 to 2018 tax year onwards

From 2017 to 2018 tax year, the time limit for making good for all non-payrolled benefits is 6 July following the end of the tax year in which the benefit was provided if the amount made good is to be taken into account for tax and NICs purposes.

Where the benefit is payrolled under voluntary payrolling arrangements, the latest date for making good is the final pay day for the tax year in which the benefit is provided (or before 1 June following the tax year for a car fuel and van fuel benefit charge and credit tokens).

When the benefit is made good after those latest dates, the amount chargeable to tax and hence liable for Class 1A NICs is unaffected.

Benefits provided before the 2017 to 2018 tax year

For benefits provided before the 2017 to 2018 tax year there was no time limit for making good non-payrolled benefits for tax purposes. An employee could reduce the amount chargeable to tax by making good up until the liability was final and conclusive. This could be after the due date for payment of the Class 1A NICs. When a benefit provided before the 2017 to 2018 tax year was made good after the Class 1A NICs must have been paid to HMRC, (19 or 22 July for those employers who pay using an approved electronic method) and the NICs were unpaid, you should not pursue the liability in respect of the amount made good.

Where Class 1A NICs were paid before the benefit was made good and the making good was after the due date for the NICs, the NICs may be repaid. The information used to calculate the contribution was inaccurate and incomplete since it did not take account of the subsequent making good. Usually, this is subject to an application for repayment being made within 6 years from the end of the year in which the Class 1A contribution was due to be paid.