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HMRC internal manual

National Insurance Manual

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

Telephone rental and telephone calls

NIM06200 sets out the position where the employee is the subscriber. Generally, there will be a liability for Class 1 NICs on any settlement which the employer makes in respect of the telephone rental and/or the telephone calls. Only if any of the calls can be shown to be business calls will there be a possibility of the payment made by the employer being excluded from NICs.

Where the employer is the subscriber the position is different. In that event, the employer will have entered into a contract with the telephone company for the provision of the telephone service - which includes both rental and calls. When the employer pays the bill he will be meeting his own debt and there will therefore be no question of the employer settling a pecuniary liability of the employee.

What the employee actually receives in these circumstances is the benefit of use of the telephone. This is, however, excluded from Class 1 NICs as a payment in kind by virtue of regulation 25 and paragraph 1 of Part II of Schedule 3 to the Social Security (Contributions) Regulations 2001 [formerly regulation 19(1)(d) of the Social Security (Contributions) Regulations 1979].

Although there will be no liability for Class 1 NICs, from 6 April 2000 there is likely to be a liability for Class 1A NICs. See NIM13000 for guidance on the general principles regarding Class 1A NICs liability.

Bills sent to employer’s address

The telephone company may send telephone bills straight to the employer for payment. You need to be alert to the fact that this does not necessarily mean that the employer is the subscriber.

Just because the bill is sent to a particular address it does not mean that that person has entered into any contract for the provision of the service. They may have agreed to pay the bill, but that does not make them the subscriber.

It is imperative that the contractual arrangements are established as that is what will determine whether it is Class 1 or Class 1A NICs which are due.