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ACCA Strategic Professional · Advanced Taxation (UK) · National insurance contributions for employed and self-employed persons

Brindle Ltd has a PSA covering minor benefits with a total value of £20,000 in 2025/26. All the employees concerned are basic rate (20%) taxpayers, and the tax is grossed up at the appropriate rate. Class 1B is charged at 15%, the same rate as Class 1A, on the value of the items plus the tax settled. What is the Class 1B liability?

The Class 1B liability is £3,750. The £20,000 of benefits is grossed up for 20% tax, giving £5,000 of tax, and the 15% rate is applied to the combined £25,000. Applying 15% to the £20,000 alone would understate it.

  1. A£3,000
  2. B£3,750Correct
  3. C£4,000
  4. D£5,000

Explanation

Tax is grossed up: £20,000 × 20/80 = £5,000. Class 1B is 15% × (£20,000 + £5,000) = £3,750. £3,000 wrongly ignores the tax element, £4,000 applies 20% to the items, and £5,000 is merely the tax figure.

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