In the majority of cases the identification of Class 1 NICs
earnings or Class 1A NICs benefits is straightforward, see
NIM13171. Class 1 NICs earnings normally
take the form of cash, or cash equivalents like vouchers or credit
or debit card use, whilst Class 1A NICs benefits are something
other than cash.
The usual way of identifying whether a benefit has been
provided is to establish ownership of the item immediately before
the employee receives it. Again, this is normally straightforward.
An employer who owns a car and allows his employee to use it, is
providing a benefit. Equally an employer who owns a television and
then transfers ownership of it to the employee has supplied a
benefit. But an employer who
the employer has made a payment of cash or cash equivalent which
must be added to any other earnings paid in the same earnings
period when calculating Class 1 NICs liability.
Remember though, that some benefits have been specifically
regulated into Class 1 NICs liability and are not disregarded as
benefits in kind, see
NIM04002 onwards.
Generally, the most important consideration in identifying
ownership is to establish who it is that makes the contract with
the supplier to purchase or supply the item. Where it is the
employer, the item will normally be a benefit. Where the employee
makes the contract and the employer pays for the item or reimburses
the employee the cost, it will be Class 1 NICs earnings which
should be added to any other earnings paid in the same earnings
period when calculating Class 1 NICs liability.
Less easy to establish are cases where it appears that an
employer is meeting a personal expense, normally referred to as a
pecuniary liability, incurred by an employee but it is argued that
a benefit is being provided. In these cases it is necessary to
check the contractual arrangements in place for the purchase. In
some cases investigations will reveal that the contract to provide
or supply an item is with the employer and renders what has been
provided to the employee a benefit on which Class 1A NICs are due.
In other cases, the employee will have contracted to purchase the
item and the employer will be meeting the employee’s personal
expense, a pecuniary liability, and Class 1 NICs will be due. This
is best illustrated by way of an example.
Example
An employee arranges for his home telephone bill to be paid by his employer. The contract to supply the telephone line is between the employee and the telephone provider. In meeting his employee's home telephone bill, the employer is meeting the employee's personal expense (pecuniary liability) and a payment of earnings on which Class 1 NICs are due has been made.
If, on the other hand, an employer contracts directly with the telephone provider to install a telephone line in the employee's home and then meets the cost of the bills, the employer is providing a benefit. The contract is between the line provider and the employer. The employer is providing the employee with a benefit, the service of a telephone, and Class 1A NICs are due.
For guidance on the NIC treatment of pecuniary liabilities see
NIM02270.
For guidance on the income tax treatment of pecuniary
liabilities see EIM00580.
When considering the contractual arrangements that exist, if it is alleged that when an employee made a purchase or paid a bill, that he was authorised to do so on behalf of the employer, see NIM02193 for further guidance to help you decide whether a payment in kind was provided or not.
See NIM13190 where you have doubts about what is provided.
