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In order to appreciate how the current legislation on 'notional payments' has developed (and its relevance to NIC). a brief history lesson is needed. The late 1980s saw the removal of an upper NIC secondary contribution limit for employers; prior to that time both employer's and employee's NICs ceased once an upper limit was reached. Perhaps in response to this move, a plethora of NIC-avoidance schemes were devised. These schemes varied in their detail, but a common theme was to try to provide an employee with goods etc (eg as an annual bonus) which were not paid in cash as such, but which the individual could easily convert to a predictable amount of money. Such goods etc were subject to tax under the benefits legislation, nonetheless the employer's NIC saving alone usually made such a scheme (if implemented successfully) 'worthwhile'.

Not surprisingly HM Government took steps to challenge such avoidance arrangements. Initially this was done by legislating to determine that particular items, although not paid in cash specifically, were deemed the equivalent of cash and were therefore