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HMRC internal manual

National Insurance Manual

Class 1 NICs : Earnings of employees and office holders : Goods and/or services purchased by directors and other employees : Liability for NICs where goods/services purchased by employees on their own account

Using as an example the situation where a director or employee buys goods in a shop, the legal position is that they, as individuals, should be assumed to be making the purchase and are, therefore, personally liable to pay for the goods in the first instance, regardless of the method of payment used.

If the employer subsequently pays for the goods by way of settling a company credit card account or reimbursement of the amount already paid out by the employee then liability for Class 1 NICs arises.

NIC liability arises in the case of:

  • a credit card transaction, at the time the employee uses the card and where the employee knows that the cost of the transaction is not to be fully repaid to the employer
  • cash reimbursement, at the time when the employer gives the cash to the employee.This liability arises because the payment by the employer simply discharges/reimburses the employee/director’s debt and such a payment falls within the definition of earnings in section 3(1) of the Social Security Contributions and Benefits Act 1992. See

NIM02010 regarding the meaning of “earnings”.

If it can be shown that any of the payment made was to cover genuine business expenses, then that part of the payment can be excluded by virtue of regulation 25 and paragraph 9 of Part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001.See NIM05020.

See NIM02194 for examples.