If there is an element of Value Added Tax (VAT) charged on a
payment of earnings, there is no liability for NICs.
Example
A client asks a firm of accountants to provide an expert to
join the company on secondment. The employing firm continues to pay
the employee’s salary but invoices the client company. The
invoice covers the expert’s salary and VAT. The VAT is not
part of the expert’s personal earnings and is not liable for
Class 1 NICs.
If the VAT element forms part of the employee’s
personal earnings then a liability for NICs will arise on that
element.
Example
An employer pays an employee’s personal telephone bill
and the bill includes charges for rental, calls and VAT. If the
employer pays the total bill they are discharging the
employee’s personal debt and a liability for NICs will arise
on the total value of the bill which is settled by the employer
(including the VAT).
