Where 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
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
In addition to normal earnings such as fees, salaries and bonuses, directors often
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.
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.
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.
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 NIM17560.2. Does the director claim to have been a consultant, advisor or concurrentlyself-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
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.
3. Was any member of the director’s family or household also employed by theemployer providing the car?
If the provider of the car also employs any family or household member of the director either as
the director’s car may be liable for Class 1A NICs through the family member rules, see NIM13130.