For the 2026/27 UK tax year, an employer provides a taxable benefit-in-kind worth £8,000 to an employee during the year. Under HMRC's Class 1A National Insurance rules, how is the employer's Class 1A liability on this benefit calculated?
- Class 1A is only due on the portion of the benefit's value above the £5,000 employer secondary threshold, so only £3,000 is chargeable
- Class 1A is charged at 15% on the full £8,000 cash equivalent of the benefit, with no threshold or lower limit, because Class 1A applies to the whole value of a taxable benefit
- Class 1A is charged at the same tiered 8%/2% rates that apply to the employee's own Class 1 National Insurance contributions
- Class 1A is only payable if the employee's total pay, including the benefit, exceeds the Upper Earnings Limit for the year
Why B? And why not the others?
Correct answer: B. Class 1A is charged at 15% on the full £8,000 cash equivalent of the benefit, with no threshold or lower limit, because Class 1A applies to the whole value of a taxable benefit
Class 1A National Insurance is charged on the cash equivalent of most taxable benefits an employer provides, at the same 15% rate as the employer's Class 1 secondary rate, applied to the full value of the benefit with no threshold or lower limit reducing the chargeable amount; for an £8,000 benefit, that means £8,000 x 15% is due, exactly as the correct option describes. The option applying a £5,000 secondary threshold is wrong because that threshold governs ordinary Class 1 secondary contributions on cash earnings, not Class 1A, which has no equivalent threshold at all. The option applying the employee's tiered 8%/2% Class 1 rates is wrong because Class 1A is an employer-only charge calculated at a single flat rate, not the two-tier structure used for employee contributions. The option making Class 1A conditional on the employee's total pay exceeding the Upper Earnings Limit is wrong because Class 1A liability depends solely on the value of the benefit provided, independent of the employee's own earnings or National Insurance position.
Source: GOV.UK: CWG5 — Class 1A National Insurance contributions on benefits in kind, 2026 to 2027