UK NI Class 1A + 1B for Employers (2026/27)
UK NI Class 1A + 1B for employers 2026/27: Class 1A 15% on Benefits in Kind (P11D + P11D(b) by 6 July deadline), Class 1B on PSA (PAYE Settlement Agreement) covering minor + irregular items, what triggers Class 1A vs Class 1B, due dates + penalties for late reporting / payment, Section 10A SSCBA 1992.
Practical UK NI Class 1A + 1B for employers guide for 2026/27: Class 1A 15% on most Benefits in Kind (P11D + P11D(b) by 6 July deadline), Class 1B on PSA (PAYE Settlement Agreement) covering minor + irregular items, what triggers each, deadlines + late filing penalties, Employment Allowance £10,500 interaction, common audit focus areas + how to fix errors via voluntary disclosure.
Employer NI classes overview
| Class | Applies to | Rate | Notes |
|---|---|---|---|
| Class 1 employee | Cash earnings (salary + wages) | 8% main / 2% upper band (employee) | Standard PAYE deduction. UEL £50,270 / PT £12,570 thresholds. |
| Class 1 employer | Cash earnings (salary + wages) | 15% above ST £5,000 | Employment Allowance £10,500 reduces first £10,500 employer NI. Sole-director companies excluded. |
| Class 1A employer only | Most Benefits in Kind (BIK) | 15% | Annual return via P11D + P11D(b), due 6 July following tax year. Class 1A NI paid by 22 July (electronic) / 19 July (paper). |
| Class 1B employer only | PSA (PAYE Settlement Agreement) items | 15% on grossed-up tax | Covers minor + irregular benefits. Employer pays tax + NI on behalf of employee. |
Common Class 1A items
| Item | Treatment | Notes |
|---|---|---|
| Company car (BIK at scale charge based on emissions) | Class 1A | Major Class 1A item. £25k BIK = £3,750 employer Class 1A NI (15%). |
| Private medical insurance | Class 1A | Premium paid by employer = BIK value reported on P11D. |
| Free meals (above incidental expense level) | Class 1A | Workplace canteen / regular meals beyond modest amounts. |
| Beneficial loans £10k+ | Class 1A | Loans £10k+ at less than HMRC official interest rate trigger BIK + Class 1A. |
| Living accommodation | Class 1A | Where employer provides accommodation (vicarages, hotel manager flats) - BIK + Class 1A applies. |
| Christmas hamper £80 | NEITHER (if PSA applied) OR Class 1A (if P11D applied) | Over £50 trivial limit. Can be put through PSA (Class 1B) or P11D (Class 1A) depending on choice. |
Related guides
- UK National Insurance Classes Complete 2026/27 - all 6 NI classes.
- UK Benefits in Kind Complete 2026/27 - BIK reference.
- UK Trivial Benefits + Christmas Party 2026/27 - £50 + £150 exemptions.
- UK PAYE + RTI New Employer 2026/27 - setup.
Frequently asked questions
What is Class 1A NI?
Class 1A National Insurance is paid by EMPLOYERS only on Benefits in Kind (BIK) provided to employees. Rate: 15% in 2026/27 (matched to main Class 1 employer rate). Reported annually via P11D (per employee BIK report) + P11D(b) (employer Class 1A return). Reporting deadline: 6 July following the tax year. Payment deadline: 22 July (electronic) or 19 July (paper) following the tax year. Late filing penalties + interest applicable. Major Class 1A items: company car, private medical insurance, accommodation, beneficial loans, certain non-cash awards.
What is Class 1B NI?
Class 1B is paid by EMPLOYERS on PSA (PAYE Settlement Agreement) items. PSA = a streamlined way for employer to pay tax + NI on certain minor benefits OR irregular benefits + items difficult to value separately for each employee. Employer pays the tax + Class 1B NI; the employee doesn't face BIK on their record. Class 1B rate: 15%. PSAs require advance agreement with HMRC + cover items like: minor staff entertainment, occasional staff gifts, small staff awards, mileage above HMRC official rates. Annual PSA return due 22 October following tax year.
What's the difference between Class 1A + 1B + P11D + PSA?
P11D + Class 1A: each employee's BIK reported separately. Employee gets BIK value added to their tax code; employer pays Class 1A NI. Used for major / regular BIK (company car, medical insurance). PSA + Class 1B: employer pays tax + NI on behalf of multiple employees collectively for minor / irregular items. Employee doesn't see BIK on their tax code. Used for: staff parties above £150/head limit, small irregular gifts, certain expense reimbursements. Decision: PSA simpler for small items + many employees; P11D appropriate for large items + per-employee tracking. Major company car: must be P11D / Class 1A. Christmas hamper over £50/head: can be either.
When is Class 1A due + how is it paid?
Annual cycle for tax year ending 5 April: (a) P11D filing deadline: 6 July - all employee BIK forms submitted electronically via HMRC. (b) P11D(b) filing: 6 July - employer's Class 1A NI return. (c) Class 1A NI payment: 22 July (electronic) or 19 July (paper). Late filing penalty: £100/month per 50 employees + 5% / 10% / 15% / 30% of unpaid tax. Late payment interest: HMRC base rate + 4% (~7-8% in 2026). Reporting via online PAYE service or commercial payroll software (Xero, Sage, BrightPay).
How do I set up a PSA?
Apply to HMRC ahead of using PSA. Process: (a) Identify items to include (must be minor / irregular / impracticable for P11D), (b) Apply via PSA1 form before 6 July following tax year (PSA cannot retrospectively cover items already reported on P11D), (c) HMRC reviews + agrees in writing, (d) Calculate tax payable + Class 1B NI by 22 October following tax year. Common PSA items: staff entertainment, small gifts, training subsidies, occasional incidental expenses. Employer pays tax + NI on behalf of employees - employees don't see anything on their tax code. Cost to employer typically 50-70% of benefit value (combined tax + grossing up + Class 1B NI). Often worthwhile for items that would otherwise need lots of small P11Ds.
How is Class 1B NI calculated?
On the GROSSED-UP TAX payable on PSA items. Mechanism: (a) Sum the cash equivalent of all PSA items. (b) Estimate employees' marginal tax rates (use weighted average if mixed bands). (c) Gross up the cash equivalent to find pre-tax value: BIK / (1 - tax rate). (d) Class 1B NI = grossed-up value × 15%. Example: £10,000 of PSA items, average 40% tax band employees. Grossed-up: £10k / (1 - 0.4) = £16,667. Class 1B NI = £16,667 × 15% = £2,500. Total employer cost: £10k (item cost) + £6,667 (employer-paid Income Tax) + £2,500 (Class 1B NI) = £19,167 to provide £10k of benefit. Material cost - calculate carefully if considering PSA vs salary alternatives.
What about Employment Allowance?
Section 1 National Insurance Contributions Act 2014. £10,500 (2026/27) reduction in employer Class 1 NI for eligible businesses. Conditions: NOT a single-director company with no other employees (Section 1(2A) NICA), NOT a public sector entity (with exceptions), NOT a company employing only its director. Most small-medium businesses qualify. Claim via PAYE submission to HMRC; automatic once claimed. Does NOT reduce Class 1A NI on BIK - only Class 1 on cash earnings. So a director with £30k salary + £20k BIK: Employment Allowance reduces Class 1 employer NI on salary (~£3,500 saved) but Class 1A on £20k BIK = £3,000 unaffected.
What if I make an error on P11D?
Voluntary disclosure via amended P11D + accompanying letter to HMRC. Lower penalties than HMRC discovery. Typical penalties: Careless 0-30% of unpaid tax (suspended in many cases); Deliberate 20-70%; Deliberate + concealed 30-100%. Plus interest at HMRC base + 4%. Common errors: missing company car BIK calculation, incorrect BIK valuation for medical insurance, missing director BIKs (most-audited area), failing to apportion mixed business/personal use vehicles. HMRC PAYE compliance reviews focus heavily on P11D accuracy - particularly for owner-managed businesses. Get pre-emptive review by accountant if uncertain.