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HMRC internal manual

National Insurance Manual

From
HM Revenue & Customs
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NIM02194 - Class 1 NICs : Earnings of employees and office holders : Goods and/or services purchased by directors and other employees : Examples

The following examples illustrate the various situations and contractual arrangements which might arise in respect of the purchase of goods and services by directors and other employees, as outlined in NIM02192 and NIM02193. They indicate how the particular arrangements will determine the position with regard to NIC liability.

Example 1

An employee books a family holiday costing £500 with a travel agent and pays the full amount by company credit card. He does not indicate that he is entering into the contract as agent for the employing company. The employer subsequently receives the credit card statement and pays off the £500 debt to the credit card company.
In this situation there is a liability for Class 1 NICs on the £500. The payment by the employer simply discharges the employee’s debt and is therefore earnings. £500 should be added to any other earnings in the earnings period in which the employer settles the credit card bill and liability assessed accordingly.
Example 2
An employee buys a piece of furniture costing £400 and some stationery for the business costing £100. He pays the £500 with the company credit card. He does not indicate that he is entering into the contract as agent for the employing company. The employer subsequently receives the credit card statement and pays the £500 debt to the credit card company.
In this situation there is a liability for Class 1 NICs on £400. The payment by the employer simply discharges the employee’s debt and is therefore earnings. However, the £100 used to buy stationery can be excluded by virtue of regulation 25 and paragraph 9 of Part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001 because it is reimbursement of a specific and distinct business expense. £400 should be added to any other earnings in the earnings period in which the employer settles the credit card bill and liability assessed accordingly.
Example 3
An employee, authorised to act as agent for their company, buys a TV. Prior to the completion of the transaction they explain to the supplier that they are acting as an agent and are making the purchase on behalf of their employer. This is accepted by the supplier and the employee pays £650 in cash. The employer subsequently reimburses the employee the £650 and then gives them the TV.
In this situation there is no liability for Class 1 NICs on the payment because the liability to pay for the TV lies with the employer. The transfer of the TV to the employee is a payment in kind for the purposes of Class 1 NICs and is therefore excluded from liability for Class 1 NICs by virtue of regulation 25 and paragraph 1 of Part II of Schedule 3 to the Social Security (Contributions) Regulations 2001. The cash value of the TV will, however, be liable for Class 1A NICs.
Example 4
A company director pays the £250 bill for a weekend on a health farm with a personal credit card. They do not indicate that they are entering into the contract as agent for the company of which they are a director. The subsequent credit card bill is passed to the company and paid out of company funds.
In this situation there is a Class 1 NICs liability on the payment made by the employer. As in example 1 the company is discharging the director’s personal debt and therefore the payment is earnings. £250 should be added to any other earnings received in the earnings period when the employer paid the director’s credit card bill and liability assessed accordingly.

See NIM08000 for guidance regarding earnings periods.