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E8.270 Class 1A NIC—overview

Historically , National Insurance contributions were not charged on benefits in kind unless they were capable of conversion into, or substitution by, cash. This general rule formerly also applied for income tax charges (up to the mid-1970s), so that, broadly, benefits which could not be converted into, or substituted by, cash were not subject to income tax or NIC.

However, with high income tax rates prevalent, increasing use was made of benefits in kind, particularly for employees on a higher rate of pay and directors, in order to reduce the overall liability. Initially, the government sought to counteract this by imposing an income tax charge on specific benefits in kind; in most cases this was calculated by applying a 'cash equivalent' equal to a specified sum which Parliament considered representative for the time being of the value of the benefit provided.

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