HMRC has updated its National Insurance Manuals to set out its position on how it expects employers to determine national insurance contributions (NIC) payable on cross‑border employment income.
The key principle is that employers should track when the work was carried out and whether the employee was within the charge to UK NIC at that time (that is, during the period when the remuneration was earned). UK NIC should then be applied to the element of the remuneration sourced to that period (or periods). In terms of “trailing income” later payments (for example, bonuses, LTIPs, RSUs, and share options) should be apportioned based on when an employee may have moved into, or out of, the scope of UK NIC during the earnings period. Specific legislation already exists on how to calculate NIC on share-based payments.
Previously, many employers may have utilised an alternative “all or nothing” approach based on the country where the employee was insured for social security purposes at the time of payment. HMRC have now confirmed their position in this latest update that the all-or-nothing approach is being deemed as incorrect.
Whilst the clarification of HMRC’s position is welcome to ensure consistency and confidence in compliant reporting going forward, there are challenges for employers to manage. Significantly, HMRC indicate that employers should review and correct historic treatments (when required) through Real Time Information (RTI) payroll, going back six tax years while maintaining evidence of the periods over which earnings arose and how the NIC liability has been recalculated. This includes claiming NIC refunds when it may have been overpaid.
Reacting to the announcement, Lee Coccaro, BDO UK Partner, stated:
Employers should:
In certain circumstances, when the RTI system cannot be used to pay or refund NICs in the case of over- or underpayment, HMRC have advised that a voluntary disclosure should be made to adjust the NIC liability.
Employees should be informed of, and subsequently paid, any potential Class 1 Primary NIC overpayment. Employees should inform their employers of potential NIC overpayments before contacting HMRC to reclaim overpaid NIC.
HMRC announced that they are developing a “digital solution” to expedite the NIC adjustment process.
Michael Smith
Sam Westlake
BDO in United Kingdom
The key principle is that employers should track when the work was carried out and whether the employee was within the charge to UK NIC at that time (that is, during the period when the remuneration was earned). UK NIC should then be applied to the element of the remuneration sourced to that period (or periods). In terms of “trailing income” later payments (for example, bonuses, LTIPs, RSUs, and share options) should be apportioned based on when an employee may have moved into, or out of, the scope of UK NIC during the earnings period. Specific legislation already exists on how to calculate NIC on share-based payments.
Previously, many employers may have utilised an alternative “all or nothing” approach based on the country where the employee was insured for social security purposes at the time of payment. HMRC have now confirmed their position in this latest update that the all-or-nothing approach is being deemed as incorrect.
Whilst the clarification of HMRC’s position is welcome to ensure consistency and confidence in compliant reporting going forward, there are challenges for employers to manage. Significantly, HMRC indicate that employers should review and correct historic treatments (when required) through Real Time Information (RTI) payroll, going back six tax years while maintaining evidence of the periods over which earnings arose and how the NIC liability has been recalculated. This includes claiming NIC refunds when it may have been overpaid.
Reacting to the announcement, Lee Coccaro, BDO UK Partner, stated:
One thing to note from this is that HMRC have been very clear that this published guidance just sets out what their view has always been; and that NIC should be apportioned on trailing payments and it cannot be treated on an ‘all or nothing’ basis.
There are a number of questions and issues that are left unresolved, including:- Broad scope: The approach is not limited to irregular awards - employers should consider regular earnings (for example, monthly salary) when only part of a pay period fell within UK NIC.
- Payroll practicality: Many payroll systems are not designed to split the same payment across multiple NIC exposures in a single period — employers may need to process workarounds with clear audit trails to comply with HMRC’s position. HMRC provide manual examples and additional guidance if software cannot handle multiple NIC exposures.
- Tracking employees and complexity of calculations: Employees on international assignments with NIC exposures will need to be tracked for NIC apportionment purposes. The individual’s circumstances will need to be considered to ensure accurate tax and National Insurance apportionments (which may differ) are calculated and processed correctly.
- Potential dual liabilities: Despite advisers raising the point on many occasions, HMRC have not provided any clarifications in their updated guidance around the possibility of relief of NIC liabilities in circumstances in which contributions would also be due on the earnings (or have already been paid in prior years) in the non-UK home or host location. Hopefully, they will consider their view in this respect and publish additional guidance.
Immediate Actions for Employers
Employers should:
- Identify affected populations and earnings
- Map data required for apportionments in respect of any upcoming payment events (for example, annual bonus schemes and LTIP vests) and the respective liability/non-liability to UK NIC)
- Assess feasibility and likely under- or over-payments associated with six‑year RTI corrections
- Agree a forward‑looking payroll control to ensure compliant reporting of internationally mobile employee’s income.
In certain circumstances, when the RTI system cannot be used to pay or refund NICs in the case of over- or underpayment, HMRC have advised that a voluntary disclosure should be made to adjust the NIC liability.
Employees should be informed of, and subsequently paid, any potential Class 1 Primary NIC overpayment. Employees should inform their employers of potential NIC overpayments before contacting HMRC to reclaim overpaid NIC.
HMRC announced that they are developing a “digital solution” to expedite the NIC adjustment process.
Michael Smith
Sam Westlake
BDO in United Kingdom