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HMRC internal manual

National Insurance Manual

Class 1 NICs: Expenses and allowances: Telephone expenses: Position where the employee is the subscriber

Telephone rental

If the employee is the subscriber they will have entered into the contract with the telephone company for the provision of the telephone line. If the employer pays the bill, either by making payment direct to the telephone company, by reimbursing the employee for the cost of the bill or by giving the employee money to settle the bill, then the employer will in effect be meeting the employee’s debt.

In such circumstances earnings will have been paid to or for the benefit of the employee within the terms of section 3(1) and 6(1) of the Social Security Contributions and Benefits Act 1992 and a liability for Class 1 NICs arises. See NIM02010 and NIM02015 for guidance on section 3(1) and section 6(1).

The full cost of the rental must be included in gross pay even if the telephone is used partly for business. This is because the employee benefits from the installation of the telephone line (and therefore from the full cost of the rental) as it allows them access to the facility for the purpose of making private calls.

If the telephone line was installed solely for business use see NIM06215.

Telephone calls

If the employee is the subscriber, they will be responsible for payment of the cost of any calls which are made on the line which they have contracted to rent. If the employer pays for the calls by sending payment direct to the telephone company or by giving money to the employee then he is meeting the employee’s debt.

In these circumstances the employee will have received a payment of earnings to or for his benefit and a Class 1 NICs liability will arise on the payment made by the employer.

However, if the employer or the employee can demonstrate that a particular amount is paid in relation to business calls this sum can be excluded from the calculation of earnings for NICs purposes in accordance with regulation 25 and paragraph 9 of Part VIII of Schedule 3 to the Social Security (Contributions) Regulations 2001 [formerly regulation 19(4)(b) of the Social Security (Contributions) Regulations 1979]. See NIM06195 and NIM05020 for further guidance on business expenses.