NIM02270 - Class 1 NICs : Earnings of employees and office holders : Payment of bills
Whenever an employer pays a bill in respect of goods or services
provided for the use of an employee there could be a liability for
Class 1 NICs.
Liability will depend upon who enters into the contract with
the party supplying the goods or services. You need therefore to
establish exactly what the particular contractual arrangements are
in order to determine who has entered into the contract. It is not
enough to rely upon identifying who the bill is addressed to since
this only concerns who is to pay the bill. The address on the bill
does not have any bearing on who contracted for the
supply/provision of the goods or services.
Employer enters into the contract and pays the bill
If the employer enters into the contract and pays the bill, the
amount involved is
not earnings for the purposes of Class 1 NICs and
no Class 1 NICs will be due. This is because, if the employer
enters into the contract any payments due under the contract are
debts of the employer, not of the employee. This applies even if
the employer pays the bill via the employee.
There will, however, be a Class 1A liability on the value of
the goods and services provided to the employee. See
NIM13000 for the general principles
regarding Class 1A liability.
Employee enters into the contract and the employer pays the bill
If the employee enters into the contract and the employer pays
the bill, the employer is simply meeting the employee’s debt.
The amount involved is earnings for Class 1 NICs purposes. See
NIM02010 for guidance on the meaning of
“earnings”.
You should exclude any part of the amount which relates to
an identifiable business expense incurred by the employee from the
calculation of earnings under regulation 25 and paragraph 9 of Part
VIII of Schedule 3 to the Social Security (Contributions)
Regulations 2001 because any such payment is a “specific and
distinct payment of expenses which an employed earner actually
incurs”. (See
NIM05020)
If the employer holds a dispensation for any of the amount
which they pay, treat this amount as you would any other expense
for which the employer holds a dispensation. See
NIM05500 for more detailed information
on dispensations.
Employer pays a bill for someone who is not an employee but a member of the employee’s household
If the employer pays a bill for someone who is not an employee but a member of the employee’s household, include the amount of the payment in the employee’s gross pay for the earnings period in which the bill was paid if the payment:
- arises from the employee’s employment
- is made in consideration of the employee’s past or future services
- is made for the benefit of the employee, and
- the employer does not intend to seek reimbursement of the amount paid.
It is important to establish full details of the payment. It is
particularly important to identify the benefit derived by the
employee in consequence of the payment. For example, if the bill
would have had to be settled by the employee, or by the household
member out of a bank account shared with the employee, then the
value of the benefit to the employee would be the full value of the
payment made by the employer.
The payment of the bill is not regarded as earnings and,
therefore, does not attract a liability for Class 1 NICs if the
employer pays a bill for someone who is not an employee but a
member of the employee’s household and there is evidence that
the payment:
- is made for personal reasons (for example, the employee’s spouse is a member of the employer’s family), or
- the employer intends to seek repayment of the amount paid (that is, the employer has paid the bill but regards the amount paid as a loan to the employee).
A payment not made for personal reasons is a “profit derived from an employment” so Class 1 NICs are due. (See NIM02010) If any part of the amount can be identified as relating to a business expense incurred by the employee then you should exclude this from the calculation of earnings. (See NIM05020)
