NIM15500 | Class 1A National Insurance contributions: Calculating Class 1A NICs: Fully matching tax deductions

From HM Revenue & Customs · National Insurance Manual

Section 10(7)(b) and 10(7B) of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992)

Class 1A NICs are not due on benefits where an employee is capable of receiving a fully matching tax deduction (i.e. cash equivalent of benefit is the same as the available deduction) under any of the following sections of ITEPA 2003:

Section 336 – Deductions for expenses.
Sections 343 and 344 – Deductions for professional membership fees and annual subscriptions.
Section 346 – Deductions for employee liabilities.
Section 351 – Expenses of ministers of religion.
Section 365 – Deductions where benefit provided.
Section 370 – Travel costs and expenses where duties performed abroad.
Section 373 – Non-domiciled employees’ travel costs and expenses where duties performed in UK.
Section 376 – Foreign accommodation and subsistence costs and expenses.
Section 377 – Costs and expenses in respect of personal security assets and services.

Where a fully matching deduction is available for tax purposes, the employer can reduce the amount on which he pays Class 1A NICs by the amount covered by the deduction. This is achieved by using the P11(D)(b) adjustment facility, see NIM15300. For examples showing the effect of deductions on Class 1A NICs liability see NIM15560.

The most common examples will be fully matching deductions available under section 336 ITEPA 2003 (business expenses deduction), though this Class 1A NICs rule applies equally to all available deductions shown above.

Detailed guidance on the availability of these deductions and the circumstances in which they are allowed is provided in the relevant sections of the EIM.