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HMRC internal manual

National Insurance Manual

NIM02193 - Class 1 NICs : Earnings of employees and office holders : Goods and/or services purchased by directors and other employees : Directors/employees authorised to make contracts on behalf of the employer

Bearing in mind the general rule, outlined in NIM02192, that it should normally be assumed that a director or employee purchasing goods/services is making the purchase on his own account, it must also be remembered that many directors and/or employees may be authorised to act on their company’s behalf. This includes making contracts, which in this context means an agreement entered into by the company to purchase particular goods and/or services, with the director/employee acting as an agent on behalf of the company.

If an authorised director/employee buys goods as an agent for their employer, and makes it clear in advance that they are acting as such an agent, it is the employer who is making the contract to purchase the goods, not the agent. Upon completion of the sale, ownership of the goods, together with the liability to pay for them, passes to the employer, not the agent.

When considering the liability for NICs, you must determine whose obligation it is to pay for the goods and/or services in the first place. The method of payment by which that obligation is discharged is of secondary importance.

If it is established that a purchase was made by an employee acting as an agent for the company, there is no liability for Class 1 NICs regardless of how the bill is settled.

If the company, as owner of the goods and/or services purchased by the director/employee acting as its agent, subsequently decides to make them available or transfer them to that agent, the transfer constitutes a payment in kind. As such, by virtue of regulation 25 and paragraph 1 of Part II of Schedule 3 to the Social Security (Contributions) Regulations 2001 there is no liability for Class 1 NICs. There may, however, in accordance with the general principles outlined in NIM13000, be a liability for Class 1A NICs.

See NIM02194 for examples.