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Class 1A contributions are payable by reference to the amount chargeable to income tax on the employee in respect of the benefit concerned¹. It follows that if the benefit in question is not chargeable to income tax as employment income, there is no Class 1A liability. However, Class 1A contributions may remain payable in cases where no tax liability actually arises, eg because the benefit is covered by losses or personal allowances.

The First-tier Tribunal reached an important decision on this point in Marcia Willett Ltd v HMRC², where a family company (M) owned a property which its directors occupied. M paid for repairs to the property. HMRC informed M that this amounted to a benefit in kind, giving rise to a charge to income tax under ITEPA 2003, s 203. M adjusted the directors' loan accounts in order to 'make good' the benefit in kind under s 203(2). HMRC accepted that this had the effect of removing the charge to income tax under s 203. However HMRC issued a ruling that