Class 1 National Insurance is due on anything that counts as earnings: cash pay, payments that settle a debt the employee owes, most vouchers, readily convertible assets and expense payments not covered by an exemption. Class 1A, paid by the employer only at 15% for 2026 to 2027, is due on taxable benefits in kind that are not already liable to Class 1, which usually means benefits the employer contracts for. HMRC’s guidance is clear that the same benefit never attracts both.

What decides whether Class 1 or Class 1A applies?

Class 1A sits behind Class 1. Under section 10 of the Social Security Contributions and Benefits Act 1992, as HMRC summarises it in its employer guide CWG5, Class 1A is only due where three conditions are met: the benefit is provided by reason of the employment, it is chargeable to Income Tax as general earnings under the Income Tax (Earnings and Pensions) Act 2003, and it does not already attract a Class 1 liability. So the first question is always whether the item is earnings for Class 1. Only if it is not, and it is taxable, does Class 1A come into play.

The practical difference is cost and timing. Class 1 is calculated each pay period, includes employee contributions and goes through the payroll. Class 1A is an employer only charge, worked out once a year on the cash equivalent used for the P11D or for payrolled benefits, and HMRC’s 2026 to 2027 employer rates confirm the Class 1A rate is 15%. There is no employee Class 1A. For the wider picture of the classes, see our page on National Insurance classes.

Why does it depend on who signs the contract?

This is the rule that catches most employers. CWG5 explains that if you meet an employee’s personal liability, for example by paying for or reimbursing private health insurance the employee has taken out, the amount is treated as gross pay and Class 1 is due. If you take out the contract with the provider yourself, it is normally a benefit in kind with Class 1A.

The note to HMRC’s table puts the reasoning plainly: where the contract is between the employee and the provider and the employer pays the provider or reimburses the employee, the payments are simply meeting the employee’s debt and are therefore liable to Class 1. The income tax route also differs. CWG2 says a payment made directly to the provider under the employee’s contract goes through the payroll for National Insurance but is reported on the P11D for tax, while a reimbursement paid to the employee goes through the payroll for both PAYE and National Insurance.

The same split appears throughout HMRC’s tables for gym and club memberships, phone contracts, professional subscriptions that are not allowable under sections 343 and 344 of ITEPA 2003, and other personal bills. Our page on a company paying a director’s personal bills applies this to owner managed companies.

Which payments go through the payroll for Class 1?

CWG2, HMRC’s further guide to PAYE and National Insurance for 2026 to 2027, lists what to include in gross pay for Class 1. Beyond salary, bonuses, commission and fees, the main items are:

  • Vouchers. Vouchers that can be exchanged for cash, or for goods, are included in gross pay for Class 1. Vouchers for meals redeemable for food and drink or a cash alternative are also included. Exceptions include vouchers for one mobile phone for private use and for the use of sporting or recreational facilities.
  • Readily convertible assets. Pay in the form of assets such as shares that can be sold on a recognised exchange, gold bullion or trade debts must be included in gross pay for both PAYE and National Insurance, at the best estimate of the amount that will be taxable.
  • Loans written off. Class 1 is due at the time the employer decides not to seek repayment.
  • Director’s personal bills charged to an overdrawn loan account, where it is normal practice to pay the director’s earnings into the same account. Class 1 is due on the overdrawn or additional overdrawn amount.
  • Company credit cards used for the employee’s own purchases, where the employer does not seek reimbursement.
  • Round sum allowances where the business expense cannot be identified. CWG2 says the whole allowance goes into gross pay for National Insurance unless it is covered by the exemption for paid and reimbursed expenses.
  • Mileage payments above the statutory amount. For National Insurance, CWG2 says the free amount is worked out using the rate for the first 10,000 business miles for every business mile, and any excess is added to earnings for that pay period.

Which benefits carry Class 1A instead?

The appendix to CWG5 shows Class 1A, not Class 1, on the most common employer provided benefits, including:

  • company cars, and fuel for private motoring in a company car;
  • medical or dental insurance or treatment where the employer contracts;
  • living accommodation, unless an exemption applies;
  • non qualifying beneficial loans;
  • assets transferred to the employee that are not readily convertible, such as furniture or clothes;
  • assets placed at the employee’s disposal for mixed business and private use;
  • professional subscriptions that are not allowable for tax, where the employer contracts.

Class 1A is also due in real time, at the same 15% rate, on termination awards above £30,000 and sporting testimonial payments above £100,000. For the mechanics of reporting and paying the annual charge, see our pages on Class 1A National Insurance and benefits in kind and the P11D.

What is free of both?

CWG5 lists the situations where no Class 1A is due, and most of them also mean no Class 1. A benefit that is exempt from Income Tax carries no Class 1A, because Class 1A depends on a tax charge. Examples are the trivial benefits exemption under section 323A of ITEPA 2003 for benefits costing £50 or less that are not cash or cash vouchers, not a reward for work and not contractual or provided through salary sacrifice; benefits provided for business use where private use is not significant under section 316, which does not cover vehicles, boats, aircraft or improvements to living accommodation; and one mobile phone per employee. Payments covered by the exemption for paid and reimbursed expenses are free of both tax and Class 1.

Items included in a PAYE Settlement Agreement come out of Class 1 and Class 1A altogether. CWG2 explains that the employer pays Class 1B instead, at the employer’s secondary rate, on the items that would have attracted Class 1 or Class 1A plus the tax paid under the agreement.

Salary sacrifice changes the picture. CWG5 says benefits provided under optional remuneration arrangements are generally not covered by the usual exemptions, with limited exceptions such as childcare vouchers, workplace nurseries and counselling, and that Class 1A on such benefits is calculated on the relevant amount under special rules. See our page on salary sacrifice schemes.

How does the difference look in numbers?

Illustration only. An employee earns £40,000 and their employer wants to provide private medical cover costing £1,200 a year. The employee is not a Scottish taxpayer and their pay is between the primary threshold and the upper earnings limit, so they pay Class 1 at 8% on the extra earnings, and the employer pays 15%.

Route Employee NI Employer NI Reported through
Employer takes out the policy None Class 1A of £180 P11D or payrolled benefit
Employee takes out the policy and the employer reimburses them Class 1 of £96 Class 1 of £180 Payroll, for PAYE and NI

The employer’s cost is the same £180, but the second route costs the employee £96 in National Insurance, and the employer’s Class 1 is due through the payroll each period rather than once a year. The employee pays Income Tax on £1,200 either way.

What deadlines and payment rules apply to Class 1A?

CWG5 gives three dates after the end of the tax year: 6 July for forms P11D and P11D(b), the return of Class 1A due; 19 July for a cheque payment to reach HMRC; and 22 July for an electronic payment to clear. Late payment can bring penalties of 5% of the amount unpaid 30 days after the due date, a further 5% at six months and another 5% at 12 months. Payrolling a benefit deals with Income Tax only: CWG5 says Class 1A must still be reported and paid separately, as our page on payrolling benefits in kind explains.

Which mistakes come up most often?

  • Reimbursing an employee’s own contract and treating it as a P11D benefit. If the employee signed the contract, the payment is Class 1 through the payroll.
  • Giving gift cards as trivial benefits. Cash vouchers never qualify, and vouchers exchangeable for goods are Class 1 earnings.
  • Forgetting Class 1A on payrolled benefits. Payrolling removes the P11D for tax, not the National Insurance return.
  • Making good too late. CWG5 says a making good payment by 6 July removes or reduces Class 1A, but a payment after 6 July does not.
  • Using the wrong mileage rate for National Insurance. The first 10,000 mile rate applies to every business mile for the National Insurance calculation.
  • Not checking director loan accounts. Personal bills charged to an overdrawn account that also receives salary can be Class 1 at the time of the charge.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.