• Date

    21 Nov 2023
  • Category

    Employer Solutions

Recent tribunal highlights possible need for National Insurance review

On 4 of October 2023, the First Tier Tribunal (FTT) released its judgment on the Ms Kalia versus the commissioners for HMRC case. At a high level, the case relates to the timing of National Insurance Contributions (NICs) paid by Ms Kalia with respect to backdated sick pay.

Ms Kalia was entitled to up to 8 weeks sick pay in any 12-month period, as well as being a participator in her employer’s group income protection plan. Under the plan she would be entitled to an amount corresponding to approximately 75% of her salary if she was unable to work due to sickness.

In October 2017, Ms Kalia became ill and began her period of sickness absence. She was paid her contractual sick pay until the end of December 2017 then statutory sick pay until April 2018, at which point payments under the income protection plan should have commenced.

However, the insurers determined that Ms Kalia’s illness was not covered under the terms of the plan. Ms Kalia subsequently challenged the insurers’ refusal with the Financial Ombudsman, who ruled that she had met the definition of incapacity and payment should have been made under the policy from April 2019.

Following the findings of the Financial Ombudsman, a backdated payment was made to Ms Kalia in June 2020, representing 15 months of arrears. This was counted as a single payment of earnings and accounted for PAYE and NIC on this basis.

Ms Kalia appealed the treatment of the payment, as she believed this should have been 15 separate mistimed payments of monthly sick pay rather than a single payment of earnings.

Although ‘Regulation 7 of The Social Security (Contributions) Regulations 2001 - Treatment of earnings paid otherwise than at regular intervals’ was engaged, the First Tier dismissed the appeal on the basis that the payments should still be treated as paid in the actual period of payment despite relating to a previous tax year.

Whilst the appeal was thus dismissed for calculation purposes, Ms Kalia may separately, apply to reallocate the payments relating to the 2019/20 tax year, potentially restoring her state benefit entitlements.  


Is it time to make National Insurance a cumulative tax?

This case highlights the complexities of National Insurance and begs the question of whether there are any other areas within National Insurance that ought to be reviewed and considered. Specifically, the question of National Insurance being aligned with tax so it is charged on a cumulative basis is a timely thought.

As we approach the festive season, when many businesses employ temporary labour, the issue will be highlighted further. Current legislation requires NI Contributions for employees (Directors have an annual threshold requirement), including seasonal workers, to be calculated using the payment earnings period thresholds, giving rise to Class 1 National Insurance in the periods they work - irrespective of the worker’s total earnings for the year.  

Typically, much of this temporary labour force comes from young people - often students or people working on zero hours contracts without full time employment. It’s clear HMRC are aware of some potential issues for young workers and they recently conducted an evaluation of National Insurance Contribution relief for employees aged under 21 and apprentices aged under 25. 

The objective of the evaluation was to measure the impact of NICs relief on hiring young people and apprentices. The evaluation found that the NICs relief had a limited impact on employers, with more than 50% stating that the reliefs had no direct effect on the recruitment decisions of the business.

Given these findings, it may be time to overhaul the current NICs reliefs and perhaps consider bringing National Insurance Contributions in line with that of the Income Tax Personal Allowance, as an example.  

As businesses have not noticed a significant difference with the current reliefs, changing National Insurance to a cumulative tax could provide welcome NICs savings for both employers and employees particularly for those engaged on a seasonal basis.















Employer’s NIC






Employee’s NIC







The above example is based upon an individual employee working only during the summer and Christmas months - the periods where temporary labour is typically at its highest. As you can see, under the current legislation, total NIC collected would be £906.63, made up of both employee’s and employer’s NIC. If NIC was to be aligned to the tax rules and therefore collected on a cumulative basis, there would be a saving to the employer of £559.40 and £347.23 to the employee.


We are here to help

If you have any questions in relation to National Insurance Contributions or employment taxes generally, please get in touch with a member of our specialist Employer Solutions team or your usual Azets advisor.

About the author

Rohit Ghai Photo

Rohit Ghai

Assistant Manager Southampton
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