NIM16370 | Class 1A National Insurance contributions: Special Class 1A NICs cases: Gifts

Section 10(1) of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992)

Gifts which are not earnings, may, be provided by reason of the employment. If provided by reason of the employment and chargeable to income tax as general earnings under ITEPA 2003, providing all the conditions in section 10(1) SSCBA are satisfied, (see NIM13021), Class 1A NICs will be due.

Subject to one exception, all sums paid to an employee by his employer in respect of expenses and all benefits provided for him by his employer are treated as made or provided “by reason of the employment”. The one exception is when the employer is an individual and he can show that the payment was made or the benefit was provided in the normal course of his domestic family or personal relationships. Thus a father who employs his son will normally be able to show that a Christmas present he gives to his son is not “by reason of the employment”.

If gifts are provided by an employer that is a company, the company is not an individual, so the exception in section 201(3) of ITEPA 2003 does not apply. The gift, whether it is cash, a voucher, services, or an asset of some kind, will be chargeable to income tax under ITEPA 2003. If it is chargeable to income tax under ITEPA 2003 and all the conditions in section 10(1) SSCBA 1992 are satisfied, Class 1A NICs will be due.

You should refer to the guidance in NIM02165 to check when HMRC accepts that a gift is not earnings from the employment.