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Understanding Class 1A National Insurance

How employers pay National Insurance on benefits in kind and why it matters for company car decisions.

What is Class 1A National Insurance?

Class 1A National Insurance (NI) is a contribution paid by employers only on most taxable benefits they provide to employees, including company cars. Unlike regular National Insurance, employees don't pay Class 1A - it's entirely an employer cost.

The Class 1A rate is 15% of the benefit's value from 6 April 2025 (it was 13.8% before then). This is calculated on the same BiK value used for employee income tax, meaning higher BiK values cost employers more in National Insurance contributions.

How Class 1A NI is Calculated

The Formula

Class 1A NI = BiK Value × 15%

Example Calculation

Car P11D Value:£40,000
BiK Percentage:28% (petrol, 130 g/km CO₂)
Annual BiK Value:£40,000 × 28% = £11,200
Employer's Class 1A NI:
£1,680/year
(£11,200 × 15%)

Why Class 1A Matters for Company Car Decisions

Class 1A National Insurance is a significant cost for employers, often overlooked when calculating the true cost of providing company cars. It's why many employers are increasingly encouraging electric vehicle choices.

High-Emission Petrol Car

P11D Value:£45,000
BiK Rate:30%
BiK Value:£13,500
Annual Class 1A NI:£2,025

Electric Vehicle

P11D Value:£45,000
BiK Rate:4% (2026-27)
BiK Value:£1,800
Annual Class 1A NI:£270
£1,755/year saved
Employer Class 1A NI savings with EV
Over a typical 3-year company car cycle:
£5,265 total savings

What Benefits are Subject to Class 1A NI?

Subject to Class 1A NI

  • ✓Company cars
  • ✓Company fuel for private use
  • ✓Private medical insurance
  • ✓Gym memberships
  • ✓Beneficial loans
  • ✓Living accommodation

Exempt from Class 1A NI

  • ℹPension contributions
  • ℹRegistered pension schemes
  • ℹChildcare vouchers (legacy schemes)
  • ℹWorkplace parking
  • ℹTrivial benefits (under £50)
  • ℹMobile phones (one per employee)

Employer Strategies to Reduce Class 1A NI

Encourage Electric Vehicle Choices

Low zero-emission BiK rates (4% in 2026-27, rising on HMRC's published schedule) reduce Class 1A NI costs. Illustrative savings of about £1,500-£2,000/year per car compared with many petrol or diesel equivalents.

Salary Sacrifice Schemes

Properly structured salary sacrifice schemes can reduce both employer and employee NI contributions, though Class 1A still applies on the car's BiK value.

Car Allowance Alternative

Cash allowances are subject to income tax and regular Class 1 NI (12.73% employer), which may be more cost-effective than high-emission company cars with 15% Class 1A NI.

Review Car Lists and Policies

Structure company car policies to favour low-emission vehicles. Consider maximum P11D values and BiK percentage caps to control Class 1A costs.

Total Cost Comparison: Employee + Employer

When considering company cars, both employee tax and employer Class 1A NI should be factored in:

VehicleP11D ValueBiK %Employee Tax*Employer NITotal
Petrol SUV£50,00035%£7,000£2,625£9,625
Diesel Saloon£40,00029%£4,640£1,740£6,380
Plug-in Hybrid£45,0008%£1,440£540£1,980
Pure Electric£45,0004%*£720£270£990

* Pure electric BiK is 4% in 2026-27 (3% in 2025-26; 5% in 2027-28; 7% in 2028-29; 9% in 2029-30). Employer NI at 15% from 6 April 2025. Employee tax assumes 40% higher-rate taxpayer; basic rate (20%) taxpayers pay half this amount.

Using Car Cost Comparison

On the company-car view, the calculator shows employer Class 1A National Insurance on the same cash equivalent that determines the employee’s income tax:

  • See modelled Class 1A NI (15% of the benefit) for a company car
  • Compare employee income tax and employer NI on the same vehicle
  • Use 2026/27 appropriate percentages, including 4% for 0 g/km cars

Figures are illustrative. They are not a recommendation of which car to choose or how to structure a fleet.

Open Car Cost Comparison

Further Resources