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Advanced Taxation (UK) · Income tax: income from employment

Class 1 and Class 1A NIC for ACCA ATX

Updated 11 October 2026 · Fact-checked

Class 1 NIC is charged on earnings: employees pay primary contributions and employers pay secondary contributions. Class 1A is paid only by employers, at 15%, on most benefits taxable as employment income that are not subject to Class 1. To solve questions, split cash earnings from benefits, apply the thresholds and rates, then deduct any employment allowance.

Understand Class 1 and Class 1A National Insurance Contributions

National insurance contributions (NIC) are a separate charge from income tax. In ATX you mainly meet them in employment and remuneration questions. You must know who pays, what it is charged on, and which rates apply.

Class 1 primary NIC is paid by the employee on earnings. Class 1 secondary NIC is paid by the employer on the same earnings. Both are calculated on cash earnings such as salary, wages, bonuses and commission. Class 1 is charged on the earnings received in each pay period, so the NIC earnings basis differs from the income tax basis, which looks at taxable earnings for the tax year. In exam questions you normally apply the annual thresholds to the annual earnings given.

Class 1A NIC is paid only by the employer. It is charged on most benefits that are taxable as employment income and are not subject to Class 1. Company cars, car fuel and private medical insurance are common examples. Benefits already within Class 1 are not charged to Class 1A as well, and some benefits fall outside it altogether, so check each item. The employee pays no NIC on benefits within Class 1A. The charge is a flat 15% of the cash equivalent of the benefit on which it is due, so no thresholds apply.

The employment allowance reduces an eligible employer's total NIC bill (Class 1 secondary and Class 1A) by up to £10,500 a year. It can never create a refund. It is available only to eligible employers. For example, a company whose only employee is a director is not eligible. It is relevant when you compare the cost of paying cash against providing benefits, or when advising on hiring staff.

Examiners often ask for the cost to the employer of a package, or whether a change in remuneration saves tax and NIC overall. You need the figures from the tax tables, which are given in the exam, and the discipline to apply the right class to the right item.

Key rules to remember

Class 1 primary (employee)
Nil on £1 to £12,570; 8% on £12,571 to £50,270; 2% above £50,270 (per year)
Charged on the employee's earnings. The employee bears this cost.
Class 1 secondary (employer)
Nil on first £5,000; 15% on earnings above £5,000 (per year)
Paid by the employer on the same earnings. It is not deducted from the employee's pay.
Class 1A
15% × cash equivalent of taxable benefits subject to Class 1A
Employer only, with no thresholds. It applies to most benefits taxable as employment income that are not subject to Class 1, including cars and fuel. It is not charged on exempt benefits or on benefits already within Class 1.
Employment allowance
Maximum £10,500 per year, set against employer Class 1 secondary and Class 1A
Only eligible employers can claim it. For example, a company whose only employee is a director is not eligible. The reduction cannot exceed the employer's NIC liability. Check the eligibility facts given in the question.
Cost of an employee to the employer
Gross salary + employer Class 1 NIC + Class 1A on benefits + cost of providing benefits
Use this when comparing remuneration alternatives.

How to solve Class 1 and Class 1A National Insurance Contributions questions

Use this approach for any NIC question on employment income.

  1. 1Identify who is being asked about: the employee, the employer, or both.
  2. 2List the pay items. Separate cash earnings (Class 1) from benefits in kind (Class 1A).
  3. 3Work out the cash earnings for the year. Remember that benefits are not part of Class 1 earnings unless the question says otherwise.
  4. 4Calculate employee primary NIC using the two rates and the two thresholds from the tax tables.
  5. 5Calculate employer secondary NIC at 15% on earnings above £5,000.
  6. 6Calculate Class 1A at 15% of the taxable benefit value for each employee, using the same benefit figures as in the income tax computation.
  7. 7Deduct the employment allowance from the employer's total, if available, and never below nil. Show each working and state your final figure clearly.

Quickest way: Three-line NIC check

When to use it: Use this when time is short and you only need the employer's or employee's NIC on a single salary and benefits.

  1. Employee: 8% × (lower of salary and £50,270 − £12,570) plus 2% × (salary − £50,270), if positive. Start the 8% band from £12,570.
  2. Employer: 15% × (salary − £5,000), and 15% × benefits for Class 1A.
  3. Subtract the employment allowance from the employer's total, limited to the total.

Common mistakes in Class 1 and Class 1A National Insurance Contributions

  • Charging employee NIC on benefits in kind

    Benefits are taxable income, so students assume NIC follows.

    Fix: Remember that most benefits attract Class 1A, paid by the employer only. The employee pays no NIC on them.

  • Using the income tax personal allowance as the NIC threshold for the employer

    Both employee thresholds are £12,570, so the employer figure gets mixed up.

    Fix: The employer's secondary threshold is £5,000 a year. Check which party you are calculating for.

  • Applying the 8% rate to all earnings above £12,570

    Students forget the upper earnings limit.

    Fix: Apply 8% only up to £50,270, then 2% above that figure.

  • Deducting the employment allowance from the employee's NIC

    The allowance is described as a NIC relief.

    Fix: It only reduces the employer's Class 1 secondary and Class 1A, never the employee's contributions.

  • Ignoring that the employment allowance cannot exceed the liability

    Students subtract £10,500 automatically.

    Fix: Compare the allowance with the employer's NIC bill. If the bill is smaller, the NIC payable is nil.

  • Charging Class 1A on every benefit listed in the scenario

    Students apply 15% to every item listed in the scenario.

    Fix: First decide whether each benefit is taxable as employment income and whether it is already subject to Class 1. Exempt benefits are outside both income tax and Class 1A, and benefits within Class 1 are not charged Class 1A as well.

Worked examples

Example 1

Priya earns a salary of £60,000 in 2025/26. Her employer is not eligible for the employment allowance. Calculate her employee Class 1 NIC and her employer's Class 1 secondary NIC.

Show the solution
  1. Employee 8% band: £50,270 − £12,570 = £37,700. NIC = £37,700 × 8% = £3,016.
  2. Employee 2% band: £60,000 − £50,270 = £9,730. NIC = £9,730 × 2% = £194.60.
  3. Total employee NIC = £3,016 + £194.60 = £3,210.60, which is £3,211 to the nearest £.
  4. Employer: (£60,000 − £5,000) × 15% = £55,000 × 15% = £8,250.

Answer: Employee Class 1 NIC is £3,211. Employer Class 1 secondary NIC is £8,250.

Example 2

Hartley Ltd's only employee is its director, who is paid a salary of £40,000 in 2025/26. She also has a company car with a taxable benefit of £6,000 and private medical insurance with a taxable benefit of £1,500. Calculate the NIC payable by the company.

Show the solution
  1. Employer Class 1 secondary: (£40,000 − £5,000) × 15% = £35,000 × 15% = £5,250.
  2. Class 1A: (£6,000 + £1,500) × 15% = £7,500 × 15% = £1,125.
  3. Total employer NIC = £5,250 + £1,125 = £6,375.
  4. Employment allowance: the company's only employee is a director, so it is not eligible. No allowance is deducted.
  5. NIC payable = £6,375.

Answer: The company is not eligible for the employment allowance because its only employee is a director. The NIC payable is £6,375.

Exam tips

  • Look in the tax tables for the NIC rates and thresholds. Do not rely on memory under pressure.
  • Label every figure as employee Class 1, employer Class 1 or Class 1A. Markers reward clear workings.
  • In remuneration comparison questions, show total cost to the employer including NIC, then explain the result in a sentence for the professional skills marks.
  • Read the scenario for eligibility facts before applying the employment allowance, and state your assumption if the facts are unclear.
  • Round to the nearest £ as the supplementary instructions allow, and show all workings.

Practice questions from Income tax: income from employment

Class 1 and Class 1A National Insurance Contributions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Class 1 and Class 1A National Insurance Contributions: frequently asked questions

What is the difference between Class 1 and Class 1A NIC?

Class 1 is charged on earnings, with the employee paying primary contributions and the employer paying secondary contributions. Class 1A is paid only by the employer on most benefits taxable as employment income that are not subject to Class 1. It is a flat 15% with no thresholds.

What is the amount of the employment allowance?

It is £10,500 a year for eligible employers. It reduces the employer's Class 1 secondary and Class 1A NIC. It cannot reduce the bill below nil, and a company whose only employee is a director is not eligible.

How do I calculate employer NIC on benefits in kind?

Take the taxable value of each benefit that is subject to Class 1A. Add them together and multiply by 15%. Use the same benefit figures as in the employee's income tax computation.

Do employees pay NIC on company cars?

No. The employee pays income tax on the car benefit, but the NIC on it is Class 1A, which only the employer pays. The same applies to any car fuel benefit.