From 6 April 2000, where a third party provides workers with awards in non-cash vouchers as part of an incentive scheme, the third party may pay the national insurance contributions (NICs) rather than employers having to report and pay NICs on incentives they do not control.

In those circumstances only, the NICs liability for non-cash vouchers is changed from Class 1 (employee and employer) to Class 1A (employer only) NICs liability.

This follows today’s laying by HM Treasury of regulations which respond to requests from business. (Northern Ireland No. 758, Gt. Britain No. 761)


1. Third party incentive schemes Current legislation places Class 1 NICs liability for non-cash vouchers, including those provided by an independent third party, on the employer. This liability exists whether or not the employer is aware of an award by a third party. Employers are unhappy with the unfairness of having to pay NICs because of someone else’s action, and the administrative burdens of calculating NICs on the award.

This has led to some employers asking third parties not to make awards to their employees. Manufacturers are concerned that any lessening of employee incentive schemes could have implications for the UK’s productivity. They believe that an award paid outside and above the normal pay packet has a real motivational impact on a worker

2. Extension of Class 1A to all Benefits in Kind From April 2000, when the extension of Class 1A NICs to all benefits in kind is introduced, there would have been a similar problem with payment of other benefits by third parties as there is currently with non-cash vouchers. Clauses in the current Child Support, Pensions, and Social Security Bill both introduce the extended Class 1A NICs charge and move the liability onto third parties.

3. Tax treatment of third party awards Third parties have, for a number of years, been able to pay tax due on awards to a worker through a Taxed Award Scheme (TAS). TAS is a non-statutory easement that allows the third party to enter into a contract with the Inland Revenue to discharge tax due on the value of the awards at the end of the year.

When the new measures have been introduced, third party incentive providers will be able to pay the NICs liability on either the provision of a non-cash voucher or a benefit in kind just as easily.


These regulations are made under existing powers in the Social Security Contributions and Benefits Act 1992.

Non-cash vouchers provided by a third party are exempted from the computation of NICs for Class 1 NICs by these regulations.

The new section 10 Social Security Contributions and Benefits Act 1992, that is being introduced in the Child Support, Pensions and Social Security Bill 1999, introduces an extended Class 1A NICs charge which will automatically pick up earnings which are excluded from Class 1 NICs.

Related reading