864.New section 10(1) defines the circumstances when a Class 1A contribution is due. An earner receives an emolument which is chargeable to tax under Schedule E from employed earners’ employment to which Chapter II, Part V ICTA applies – i.e. the earner is a director or earns £8,500 per year or more. As all or some of the emolument received is exempted from, or not liable to, Class 1 NICs, then Class 1A NICs are due.
865.New section 10(2) and (3) provides that the person liable to pay the Class 1A NICs (usually the employer) is also the person who is liable to pay secondary Class 1 NICs in that tax year – or would be if there were any earnings liable to Class 1 NICs.
866.New section 10(4) provides that the amount of Class 1A due is the amount of the emolument not subject to Class 1 - as per subsection (1) - multiplied by the Class 1A rate for the tax year.
867.New section 10(5) provides that the rate for Class 1A is the same as that for secondary Class 1 NICs.
868.New section 10(6) provides that Class 1A is not due on any emoluments which have been included in a PAYE Settlement Agreement for tax and NICs purposes.
869.New section 10(7) provides that, for section 10 only, the emolument subject to Class 1A shall amount to the valuation of the benefit for tax purposes.
New section 10(7)(a) disapplies reliefs or allowances which, for income tax purposes, the employee may be able to claim against their tax under ICTA sections 198, 201, 201AA or 332(3), which allow deductions for certain types of expenses.  These will not affect the valuation for Class 1A NICs purposes where the benefit is provided partly for business and partly for private use.
New section 10(7)(b) excludes from Class 1A charge those benefits where the whole amount of the emolument would be deductible for tax because it has been provided wholly for business purposes.  An example would be a fax machine provided only for use when engaged in the employed earner’s employment.
870.New section 10(8) provides regulation-making powers for the Treasury to amend the effect of 10(7). It will allow, should this be needed, the matching by regulations of any alterations to relevant tax legislation. For example, if a new ICTA section introduced a new relieving provision which needed to be included for the coherence of the Class 1A NICs scheme this could be done in regulations.
871.New section 10(9) provides regulation-making powers for the Treasury to exempt certain persons or types of emolument from Class 1A liability or reduce Class 1A liability. The Government anticipates using these powers, for example, to mirror items already exempted from Class 1 NICs, such as certain forms of training; or to reduce liability where the cost of providing a benefit is split between more than one company.
872.Subsection (3) of section 74 introduces new subsection 4(6) of the Contributions and Benefits Act. This provides regulation-making powers for the Treasury to treat any amount, which is the value of a benefit subject to Schedule E tax, as earnings from employed earner’s employment. As such, it will maintain the existing use of the power in subsection 4(6) in relation to the provision of conditional and convertible shares. It further allows the Treasury to prescribe the time and manner in which the earnings are to be treated as being paid.
873.An example of how this power could be used is to prescribe that where an employee buys or obtains goods or services by use of a company credit card which are immediately transferred from the company to that individual the amount involved in the purchase shall be liable to Class 1 NICs. Also, it would permit future alignment of the tax and NIC treatment of payments to employed earners. For example, it is possible that this power may be used to mirror in NIC legislation the tax provisions relating to the new all-employee share plan, proposed in the 1999 Budget.
874.Subsections (4) to (7) make consequential changes to existing legislation.
875.Subsection (8) provides that the Class 1A charge shall come into effect from 6 April 2000 to match the beginning of the tax year 2000-2001.
876.Subsection (9) provides that statutory instruments made under any of the powers in the new section 10 may be backdated to the beginning of the tax year in which they are made. This will allow the details of the Class 1A charge to become operative from the beginning of the tax year. This provision is likely only to be used in future years to mirror a change in tax legislation in a Finance Act for that year.
Part IV: National Insurance Contributions Commentary on Sections New section 10: Class 1A contributions: benefits in kind etc.