NIM16382 - Class 1A NICs: Special Class 1A NICs cases: Vans and van fuel provided for private use: Motoring expenses connected with a van provided for private use.
The method of calculating Class 1A NICs on vans provided for private use follows the method used for tax purposes. This means that Class 1A NICs are payable on the cash equivalent of the van ascertained in accordance with section 159AA and Schedule 6A ICTA 1988.
Tax treatment of motoring expenses connected with a provided van
The payment by an employer of motoring expenses to, or on behalf
of, an employee which is incurred in connection with a van do not
give rise to a tax liability in addition to the tax payable under
section 159AA ICTA 1988. An exception to this is the cost of a
driver provided while the van is being used privately.
This means that where an employee is taxed under section
159AA ICTA 1988 on the provision of a van, no further tax will be
charged if the employer reimburses the employee any motoring
expenses incurred in connection with that van. The relevant tax
legislation is section 159AA(3) ICTA 1988 see SE22130.
NICs treatment of motoring expenses connected with a provided van
For NICs purposes, however, there is no similar legislation in
force to exclude these additional motoring expenses from, in
certain circumstances, being treated as earnings liable for Class 1
NICs, payable in addition to any Class 1A NICs that are also
payable on the provision of the van.
The reason for this is that if an employee who is provided
with a van contracts to pay any expenses associated with that van
but does not use the litany to make the supplier aware that the
purchase is being made on behalf of the employer, any later
reimbursement is treated as a payment of earnings. For guidance on
use of the litany see
NIM02192.
Whether a Class 1 NICs liability arises on that payment of
earnings will depend upon the purpose of the original purchase. If
the purchase by the employee was wholly incurred as a business
expense, no Class 1 NICs liability will arise, see
NIM05020. An example would be the cost
of having a tow bar fitted. If the tow bar is used for business
purposes only the cost can be excluded from earnings as a business
expense.
If the original payment is not wholly incurred as a business
expense, or more than the cost of the specific expense is
reimbursed, only that part of the reimbursement which can be
identified as a business expense can be excluded. Any remaining
amount is regarded as profit and treated as a payment of earnings
on which Class 1 NICs are due. An example would be an employee who
pays for the servicing of a provided van and is later reimbursed
more than the specific cost.
In cases where reimbursed expenses are paid which may attract
a Class 1 NICs liability but do not attract any further tax
liability than that charged under section 159AA ICTA 1988, the
Class 1 NICs liability is administratively ignored and no attempt
should be made to collect it.
Expenses met by way of a non-cash voucher
If the motoring expenses are met by way of a non-cash voucher, the same administrative arrangement as outlined above operates to ignore the Class 1 NICs liability. For further details, see NIM02419.
Types of motoring expense
The types of motoring expenses included are those excluded under tax legislation. Although it is not possible to supply a definitive list, the following are thought to be the most common:
- servicing and/or maintenance costs, including replacements
- road tax
- insurance costs
- fees/subscriptions to a motoring organisation.
Although the above are the main expenses which are likely to arise, there may be occasions where other types of expenses are reimbursed. Where this happens it will be necessary to check whether the expenses are excluded from an additional tax charge under section 159AA(3) ICTA 1988. Where there is no additional tax liability, no Class 1NICs are due but where there is an additional tax liability, Class 1 NICs will be due on any expense which is not a specific and distinct business expense.
