Annex 1: Minor changes in the law made by the Act: Change 153: Deduction for employers’ national insurance contributions paid by an employee: paragraph 594 of Schedule 1
This change gives a deduction as part of an employee’s travel expenses for national insurance contributions paid in respect of a person employed by the employee.
Section 617(3) of ICTA contains a general prohibition on the deduction for tax purposes of any social security contribution. But subsection (4) sets out certain exceptions to the general prohibition. One of the exceptions concerns a deduction from taxable earnings for employers’ national insurance contributions paid by an employee.
Before section 617 of ICTA was amended by ITEPA the exception was expressed in terms of a deduction available under section 198 of ICTA. That section covered most of the expenses for which an employee could have a deduction. In ITEPA the rules for expenses were split between the “general rule” in section 336 and the rule for “travel expenses” in sections 337 to 342.
The consequential amendment of section 617 of ICTA by paragraph 87(3) of Schedule 6 to ITEPA allows a deduction for employers’ national insurance contributions only if they are within the general rule in section 336 of ITEPA. It is possible for an employee to incur travel expenses in the form of an employee’s wages (for instance, those of a chauffeur). In that case, a deduction should be available for employers’ national insurance contributions under sections 337 to 342 of ITEPA.
This Act moves the employment income part of the rule in section 617 of ICTA into ITEPA, where it becomes section 360A. Subsection (2) of the new section makes it clear that a deduction may be made for employers’ national insurance contributions in accordance with the general rule in section 336 of ITEPA or in accordance with the rules for travel expenses in sections 337 to 342 of ITEPA. This restores the law to what it was before the ITEPA amendment to section 617 of ICTA.
This change is in taxpayers' favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.