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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Class 1 NICs: Expenses and Allowances: Petrol - Purchasing fuel on behalf of the employer - The Overdrive Case

The case of R v The Department of Social Security ex parte Overdrive Credit Cards Limited 1991 WLR 1991 - `Overdrive’ - focused attention on the ability of company directors and certain authorised employees to enter into contracts to purchase goods or services on behalf of their companies, see NIM02191.

Although Overdrive centred primarily on fuel purchased by way of an employer’s credit card/fuel agency card, the case established that for NIC purposes there should be no difference in the treatment of fuel obtained by whatever payment method.

Moreover, Overdrive established that - excluding any fuel identified as being solely for business use - Class 1 NIC liability arose in respect of fuel purchased by any payment method.

The reason for this is that, at the point of transferring the fuel from the pump into the tank of a car, the employee is effectively entering into a contract with the garage to purchase the fuel and to pay for it.

The employee may then substitute his employer’s liability for that of his own by offering a company credit card, or charging the purchase to his employer’s account, or by using a fuel agency card. Despite such an action, when the employer then discharges this liability he is in fact making a payment of ‘money’s worth’ to the employee and a liability for Class 1 NICs arises on what is a payment of earnings.

Whilst Overdrive established the general rule that liability for Class 1 NICs arises, no challenge was made to the argument that liability did not arise if it was explained in advance, and accepted by the provider/seller, that the purchase was being made on behalf of the employer. Under such an arrangement the employee is placing himself in the position of an agent for his company and the establishment of this `agency’ status is sufficient to render the employer liable to pay for the petrol. Following Overdrive this process became known as ‘using the litany’.

Where an employer gives an employee prior authority to purchase fuel on the his behalf and 

  • the employee explains this in advance of the contract to purchase the fuel being made and  
  • the supplier accepts this

no Class 1 NICs are due.

In allowing the employee to purchase fuel on his behalf what the employer is actually providing to the employee is the benefit of free fuel which is disregarded from earnings on which Class 1 NICs are due, see NIM13170. The fuel is then liable for Class 1A NICs, see NIM16170 

The substitution of the employee’s liability for that of the employer’s by use of the litany operates irrespective of the manner in which the employee pays for the fuel, with the exception of non-cash vouchers.