HMRC has published a set of FAQs dealing with national insurance contributions (NICs) on amounts subject to income tax under Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). This is the legislation that taxes payments made to employees by third parties and is often referred to as the "disguised remuneration" legislation. A copy of the FAQs can be found here.

Copies of our previous e-alerts on disguised remuneration can be found here.

There are some potential areas of difficulty when applying NIC legislation in this area and the FAQs highlight and explain some of these, including:

  • As there is no remittance basis for NICs, NICs and PAYE are not always applied to the same amount where the individual is subject to tax on the remittance basis (FAQ 10).
  • There is no direct equivalent in the NICs regulations to section 554Z13 of ITEPA 2003, which prevents further income tax charges on certain "later events" following a relevant step taxed under Part 7A. Although paragraph 2A in Part 10 of Schedule 3 to the Social Security (Contributions) Regulations 2001 may prevent double NICs charges in some circumstances (FAQ12).
  • It is a long-standing principle of the NIC system that Class 1 NIC is not refunded unless the NIC has been paid in error and therefore NICs relief is not available even where income tax relief can be claimed in respect of a Part 7A charge (FAQ13).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.