HMRC updates guidance on Class 1A NIC (formerly CWG5)

HMRC has recently updated its 2017 guidance on Class 1A national insurance contributions (NIC) on benefits-in-kind(BiK), formerly known as booklet CWG5.

HMRC’s guide tells you what you need to know and do about Class 1A NIC. It explains when Class 1A NICs are due and how they are worked out, reported and paid.

In more detail, the guide:

  • explains the general rules about Class 1A NIC (paragraphs 4 to 26);
  • provides step-by-step guides to working out whether Class 1A NIC is due and how it is worked out, reported and paid (paragraphs 8 and 26);
  • explains special Class 1A rules, including what happens when a benefit is provided to an employee by a third party (paragraphs 27 to 42).

Paragraphs 43 to 53 explain some of the main terms used in the guide; and
Appendix 1 lists the most common taxable benefits and expenses and explains which are liable for Class 1A NIC.

The update comprises additional guidance on optional remuneration arrangements (OpRA) (which includes salary sacrifice and where a cash allowance is exchanged for a BiK) in para 9 in Part 3 and a new paragraph at the beginning of Part 5.  This guidance cross refers to further guidance about OpRA in Appendix 12 of booklet 480: Expenses and benefits - a tax guide.

The new rules for BiK provided via OpRA came into force on 6 April 2017.

Where a BiK is chosen instead of some form of cash pay, the value of the BiK and the amount therefore liable for NIC is (in broad terms) the greater of the amount of salary or cash pay foregone and the value of the BiK under the normal BiK rules, ignoring any amount made good.

For most benefits provided through OpRA, BiK that were exempt are no longer exempt.

The following BiK are not affected by the new rules:

  • payments by employers into registered pension schemes;
  • childcare vouchers, workplace nurseries, and directly- contracted employer-provided childcare;
  • bicycles and cyclist safety equipment (including cycle-to-work); and
  • ultra-low emission cars (ULEVs) with CO2 emissions of no more than 75g/km that are in the scope of the car benefit charge.

Transitional provisions apply for a limited period. Subject to certain specific exceptions, OpRAs entered into before 6 April 2017 continue to be subject to the normal BiK rules until the earlier of:

  • variation;
  • renewal (including auto-renewal);
  • modification of the arrangement; or
  • 6 April 2018.

Those exceptions are cars with CO2 emissions of more than 75g/km, living accommodation and school fees where the latest date for transitional protection ending is 6 April 2021.