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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1A National Insurance contributions: Liability for Class 1A NICs before 6 April 2000: Need for a relevant payment of earnings to have been made: Tax years 1991/1992 to 1997/1998

Section 10(2) SSCBA 1992Where for any tax year between 1991/1992 and 1997/1998 a director received no earnings on which Class 1 NICs were due from an employer providing him with a car, a liability for Class 1A NICs could not arise, see

NIM17551. This applied irrespective of whether the director was chargeable to income tax on the benefit of the car.

Genuine cases of directors failing to receive earnings of any description from their employers are rare. Investigations often reveal that while the director may not be drawing a salary, he is receiving earnings in some form.

Before accepting that a Class 1A NICs liability does not arise, you should consider the following possibilities.

  1. Did the director receive earnings of any description from

  2. his employment with the employer providing the car?

In addition to normal earnings such as fees, salaries and bonuses, directors often

* receive expense payments which contain an element of profit, see [NIM06160](https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim06160)
* have their personal bills paid by their employer, see [NIM02270](https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim02270)
* have their income tax liabilities met by their employer, see [NIM02370](https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim02370).

Any of the above payments will be sufficient to satisfy the relevant payment of earnings test in section 10(2) of the SSCBA 1992, but see NIM17554 where the only payment made to the director/employee is that to cover fuel.

  1. other employed earners employment with the same company?

Some directors are employed by one company in more than one capacity and receive earnings from both employments or from one of the employments only. In some cases it may be argued that the director is provided with a car by reason of his employment as a director but his actual earnings are derived from his employment as an employee. For Class 1A NICs purposes all employments by the same employer are regarded as one employment and earnings from any of his employments with the same employer will be sufficient to satisfy the relevant earnings test.

  1. employed earner’s employment with other employers who are connected or associated with the employer supplying the car?

If there is a connection between the companies, the director can be considered to have received the benefit of the car not by reason of his employment with the provider of the car alone, but by being employed by the associated company.

The important consideration in these types of cases is the employment itself. Liability for Class 1A NICs will normally depend on whether any work is undertaken by the director for the company supplying the car. If work is undertaken by the director for the company supplying the car and/or the company providing the earnings, then it can be argued that the car is being made available by reason of his employment with the connected company and a relevant payment of earnings has been made. This argument will be further supported if the company supplying the car does not meet the cost of providing it or the cost is shared between the two companies.

  1. employed earner’s employment with other employers who are not connected?

If the car is used for business purposes connected with those other employers, Class 1A NICs liability may arise under the provisions of a car supplied by a third party, see NIM17560.

  1. Does the director claim to have been a consultant, advisor or concurrently self-employed at the time the car was made available?

If the director’s earnings are claimed to arise from his self-employment and not his directorship, consider

  • who paid the director
  • who the earnings were paid to
  • for what the earnings were paid and
  • who provided the car, for what purpose and in exchange for what.If the earnings are derived from the employment, rather than from the director’s concurrent self-employment, the relevant earnings test is likely to have been met.
  1. Was any member of the director’s family or household also employed by the employer providing the car?

If the provider of the car also employs any family or household member of the director either as

  • a director who receives earnings, or
  • an employee earning at a rate of £8,500 or morethe director’s car may be liable for Class 1A NICs through the family member rules, see

NIM13130.