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HMRC internal manual

National Insurance Manual

NIM02195 - Class 1 NICs : Earnings of employees and office holders : Goods and/or services purchased by directors and other employees : Evidence required

Where contracts involve company directors, it is important to establish whether the transaction is similar to one of those described in the examples provided at NIM02194 or whether it is one of those occasions when the company discharges a personal debt on behalf of the director and subsequently debits the director’s loan account. Such cases are different to the scenarios outlined in the examples and need different treatment. See NIM12016 et seq.

It may prove difficult to establish exactly what transpires in many cases, but it must be stressed that the onus to provide evidence which shows that the agency conditions are satisfied lies with the employer – and with the employee where appropriate.

When dealing with such cases, you should expect to be shown some form of evidence which shows that:

  • the employee/director is authorised to purchase goods/services on behalf of the company; and
  • the employer has advised the employee/director to indicate to the seller/supplier that the purchase is being made on behalf of the purchaser’s employer; and
  • the employee/director did indicate that they were acting as an agent of their employer before the purchase was made.

This list is not exhaustive and evidence may only come to light by talking to the parties involved. If no such evidence is forthcoming, liability for Class 1 NICs will arise.

Although such occasions are likely to be rare, some employers may wish to confirm that certain directors/employees are authorised to act as agents by sending a letter to a supplier/provider – for example to a shop or garage. Any such letter must be sent to the appropriate branch/office of the supplier. It must specify which directors/employees are authorised to enter into contracts on the employer’s behalf and confirm that those directors/employees will identify themselves to the supplier. The letter should also be updated at regular intervals. It is important also to establish that the supplier agrees to the employer’s proposals.