HMRC internal manual

National Insurance Manual

Class 1 NICs: Expenses and allowances: Evidence necessary to identify business expenses

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

Although the onus is on employers to ensure that NICs are calculated correctly and on the right amount of earnings, HMRC is entitled to verify, through its officials, that the calculation has been based on the correct amount of earnings.

In order to be able to provide such verification, employers need to ensure that they have evidence to identify the business expenses actually incurred so that they can demonstrate:

  • the amount of expenses involved
  • that the expenses were incurred as part of the employee’s work, and
  • that the amount disregarded when calculating earnings for NICs purposes was correctly excluded from gross pay.

The legislation concerning NICs does not contain any rules about what type of evidence is required to support the identification of business expenses actually incurred. To confirm the purpose of a payment and the amount of any business element the Inland Revenue will consider all and any evidence which may be available.

In dealing with any expense a common sense, reasonable approach must be applied. All relevant information, or evidence, must be considered and Employer Compliance Officers will need to exercise a degree of judgement, especially where there is no documentary evidence available and oral evidence has to be obtained.

Generally, consideration of expense payments will require a two-step approach:

  • firstly, to establish that a business expense has been incurred, and
  • secondly, to determine the amount involved.

It is not possible to supply a definitive list of the types of evidence employers could hold to aid the process. The following paragraphs provide some useful guidelines but you should remember that any evidence which is available should be taken into consideration.

Documentary evidence

The most common type of evidence produced by employers will be documentary evidence and, although not exhaustive, the following are good examples of what might be available:

  • a log of business telephone calls or business mileage
  • credit card bills/vouchers
  • receipts
  • diaries showing business engagements/appointments, etc.
  • a representative survey of the costs involved
  • an HMRC dispensation. (See NIM05500 for general guidance regarding dispensations).

Some employers may produce P11Ds as evidence, or alternatively, a letter from an officer of HM Revenue and Customs indicating that a certain percentage of payments has been agreed as business expenditure for tax purposes. In that event, you should accept that a similar split is in order for Class 1 NICs purposes. The employer should be able to demonstrate the basis on which the agreement was reached.

Oral evidence

Any evidence should be taken into account when trying to identify business expenses. This means that as well as documentary evidence, oral evidence should be considered.


Because of the time difference, an employee is required to make, from home, a business call to a foreign country. If no dispensation is held for the reimbursement by the employer (see NIM05500) and itemised bills are not available then any explanation which is offered should be considered. The oral evidence regarding the nature of the call, the reason for it, the cost, etc. should be considered bearing in mind the type of employment concerned, and whether it is the sort of business which might need to make calls as alleged.