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HMRC internal manual

National Insurance Manual

From
HM Revenue & Customs
Updated
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NIM02270 - Class 1 NICs : Earnings of employees and office holders : Payment of bills

Whenever an employer pays a bill in respect of goods or services provided for the use of an employee there could be a liability for Class 1 NICs.

Liability will depend upon who enters into the contract with the party supplying the goods or services. You need therefore to establish exactly what the particular contractual arrangements are in order to determine who has entered into the contract. It is not enough to rely upon identifying who the bill is addressed to since this only concerns who is to pay the bill. The address on the bill does not have any bearing on who contracted for the supply/provision of the goods or services.

Employer enters into the contract and pays the bill

If the employer enters into the contract and pays the bill, the amount involved is not earnings for the purposes of Class 1 NICs and no Class 1 NICs will be due. This is because, if the employer enters into the contract any payments due under the contract are debts of the employer, not of the employee. This applies even if the employer pays the bill via the employee.

There will, however, be a Class 1A liability on the value of the goods and services provided to the employee. See NIM13000 for the general principles regarding Class 1A liability.

Employee enters into the contract and the employer pays the bill

If the employee enters into the contract and the employer pays the bill, the employer is simply meeting the employee’s debt. The amount involved is earnings for Class 1 NICs purposes. See NIM02010 for guidance on the meaning of “earnings”.

You should exclude any part of the amount which relates to an identifiable business expense incurred by the employee from the calculation of earnings under regulation 25 and paragraph 9 of Part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001 because any such payment is a “specific and distinct payment of expenses which an employed earner actually incurs”. (See NIM05020)

If the employer holds a dispensation for any of the amount which they pay, treat this amount as you would any other expense for which the employer holds a dispensation. See NIM05500 for more detailed information on dispensations.

Employer pays a bill for someone who is not an employee but a member of the employee’s household

If the employer pays a bill for someone who is not an employee but a member of the employee’s household, include the amount of the payment in the employee’s gross pay for the earnings period in which the bill was paid if the payment:

  • arises from the employee’s employment
  • is made in consideration of the employee’s past or future services
  • is made for the benefit of the employee, and
  • the employer does not intend to seek reimbursement of the amount paid.

It is important to establish full details of the payment. It is particularly important to identify the benefit derived by the employee in consequence of the payment. For example, if the bill would have had to be settled by the employee, or by the household member out of a bank account shared with the employee, then the value of the benefit to the employee would be the full value of the payment made by the employer.

The payment of the bill is not regarded as earnings and, therefore, does not attract a liability for Class 1 NICs if the employer pays a bill for someone who is not an employee but a member of the employee’s household and there is evidence that the payment:

  • is made for personal reasons (for example, the employee’s spouse is a member of the employer’s family), or
  • the employer intends to seek repayment of the amount paid (that is, the employer has paid the bill but regards the amount paid as a loan to the employee).

A payment not made for personal reasons is a “profit derived from an employment” so Class 1 NICs are due. (See NIM02010) If any part of the amount can be identified as relating to a business expense incurred by the employee then you should exclude this from the calculation of earnings. (See NIM05020)