The extension of Class 1A NICs to all taxable benefits in kind was announced in the last Budget. This measure will align more closely the tax and employers’ NICs treatment of benefits in kind from April 2000. As part of this change tax and National Insurance Contributions (NIC) charges on some employee benefits in kind, including welfare counselling, will be exempted Dawn Primarolo, the Paymaster General, announced today.

In response to a Parliamentary Question today the Paymaster General announced:
“The extension of Class 1A NICs has been structured around the existing tax reporting system to minimise any extra work for employers.
Employers will, for Class 1A purposes, use the valuation figures for benefits that they already put on each employee’s P11D form for tax purposes. The P11D will be clearly marked to make it obvious which figures to use to calculate the Class 1A liability.
The first reports on, and payments of, the extended Class 1A contributions will be due in July 2001. Full guidance on how the new arrangements will work in practice will be made available to employers shortly.
In addition, to reflect developments in modern working practices and reduce reporting requirements on employers, the Government will be exempting a number of benefits from both tax and NICs. The benefits to be exempted are:
small amounts of private use by an employee of items provided by the employer for the employee’s work;
qualifying beneficial loans; and
general welfare counselling provided by an employer.
The Inland Revenue are also making it clear that an extra- statutory concession, which exempts the benefit of subsidised meals provided to employees in certain circumstances, applies to light refreshments as well.”


Class 1A NICs are payable by employers. Employees do not pay Class 1A NICs nor will they under the new scheme.

The rate at which Class 1A is charged is not changing. The scope of the charge is changing. Class 1A NICs currently apply to car and car fuel benefits. From 6 April 2000 the charge will cover all taxable benefits in kind except those –
where Class 1 NICs are due; or
covered by a dispensation; or
included in a PAYE Settlement Agreement;
provided for employees earning at a rate of less than #8,500 a year ; or
otherwise not required to be reported via the P11D return arrangements.

Expenses payments will not be liable to Class 1A NICs.

New return and payment arrangements will be introduced for the extended Class 1A NICs. These are designed to minimise employers’ end of year work. The Class 1A return will be merged with existing P11D reports, and payment will be made to the employer’s PAYE/NICs reference at the Accounts Office. The return requirements will be flexible to cater for employers’ own administrative arrangements. The first returns and payment under the new arrangements will be due in July 2001.

Further guidance on the proposed new arrangements is being prepared in consultation with representative bodies and should be ready for issue to employers and software providers shortly.

Work-related benefits

Items, such as tools, provided for employees and used in the workplace solely for work purposes are exempt from tax and NICs. This exemption will be extended to cover situations where there is some small measure of private use of the item whether in the workplace or elsewhere.

Qualifying beneficial loans

The benefit of a loan provided by an employer at no or at a low rate of interest is generally taxable and has to be reported on the P11D. Where interest on the loan would wholly qualify for relief, however, the employee is entitled to an offsetting deduction against the taxable benefit. Under the new proposal employers will no longer have to report these fully qualifying loans.

Welfare Counselling benefits

Benefits in kind provided by employers for employees are generally taxable if the employees are earning #8,500 a year or more. This includes private medical or other health or welfare benefits provided by an employer – except in the exceptional circumstances where the counselling or treatment relates directly to something which has happened in carrying out the employment. In practice, however, where welfare counselling services are available to employees generally the assessable benefit per employee can be very small and tax may not be charged.

The Revenue will be discussing the details of the proposed counselling exemption with employers’ welfare representatives. The exemption will be given provided the counselling service is available to employees of the employer generally.

Relief will not be given for costs of private medical treatment or consultation.

Employer provided refreshments

Section 155(5) of the Income and Corporation Taxes Act 1988, together with extra statutory concession A74, exempts the benefit of subsidised canteen meals provided by an employer if the meals are made available generally to employees of the employer.

The issue has arisen whether these provisions also cover light refreshments – tea, coffee etc. It has not been the Inland Revenue’s general practice to pursue tax on light refreshments; but we have recently become aware of some uncertainty on the matter. The opportunity is therefore being taken to clarify the concession so that it explicitly covers light refreshments. The revised text of ESC A74 is attached.



Income tax is not charged on the benefit to an employee of free or subsidised meals provided by his employer on the employer’s business premises, or in any canteen where meals are provided for the staff generally, or on the use of any ticket or token to obtain such meals, if
– the meals are provided on a reasonable scale; and
– either all employees may obtain free or subsidised meals on a reasonable scale, whether on the employer’s premises or elsewhere, or the employer provides free or subsidised meal vouchers for staff for whom meals are not provided.

The concession does not apply in the case of a hotel, catering or similar business, to free or subsidised meals provided for its employees in a restaurant or dining room at a time when meals are being served to the public, unless part of it is designated as being for the use of staff only.

The concession also applies to light refreshments as it does to meals.

Related reading