What is Class 1B National Insurance?
Class 1B national insurance contributions are payable by employers if they have a PAYE settlement agreement with HMRC.
The class 1B type of NIC are also known as employer only contributions and are not payable by employed individuals paid under PAYE.
A settlement agreement allows an employer to cover the income tax owed on specific benefits in kind and expense payments.
Instead of paying class 1 or class 1A contributions an employer is required to make class 1B contributions for items that are included in a PAYE settlement agreement.
What is a PAYE settlement agreement?
A PAYE Settlement Agreement (PSA) enables an employer to make a single yearly payment that covers both their tax and national insurance obligations for employees’ minor, irregular or impracticable expenses or benefits.
A PSA agreement aims to simplify the process for employers of paying national insurance for employees benefits in kind and ensures compliance with HMRC’s regulations.
You are not permitted to include wages, valuable benefits such as company cars, or cash payments like employee bonuses, lump sum allowances, and beneficial loans in a PSA.
There are also limitations if you submit your application after the commencement of the tax year.
Employers can apply for a PSA online via .GOV after which HMRC will review your application and send any approved PSA by post.
The deadline to submit an application for a PAYE Settlement Agreement (PSA) is the 5th of July in the year following the first tax year in which it is applicable.
Is class 1 and class 1B national insurance different?
Yes, there are distinctions between class 1 and class 1B national insurance contributions, although both are remitted to HMRC.
Employers are specifically responsible for paying class 1B contributions while employees exclusively make class 1 national insurance contributions as an automatic deduction from their salary.
Employers that don’t have a PSA with HMRC and pay national insurance contributions for employee benefits in kind should pay class 1A national insurance instead.
How to pay class 1B national insurance
To notify HMRC of the value of items included in your PAYE settlement agreement you can either use form PSA1 or submit a calculation.
To ensure HMRC compliance class 1B national insurance owed (as per your PAYE settlement agreement) should be paid by the 22 of October if paid electronically or October 19 otherwise in the year following the PSA application.
