Class 1 NIC & Employers credit card

[Milbo]

A company has suggested giving a key employee a company credit card on which he can purchase private items.

Clearly there is a taxable benefit however the NIC position has me confused.

The guidance at the NIC manual (NIM02090) suggests that so long as the rules therein are applied then no Class 1 NIC is payable. So for example, the employee purchases a £1000 television for himself with the blessing of his employer but tells the shop assistant that the purchase is for his employers staff so they can watch tomorrow's Gold Cup. The shop accepts this, the employee takes the television home and sets it up for his children to watch in the playroom. No Class 1 NIC is payable?

Presumably if the employee doesn't follow NIM02090 and produces the card and makes payment without any word other than thank you, the purchase is subject to Class 1 NIC.

Does anyone have any definitive answers or explanations?

Thanks in advance,

Mark

[Matt@callunatax]

Further guidance can be found at NIM02192, with examples at NIM02194 would should clarify the treatment.

Hope it helps if not let me know.

Regards

[Milbo]

Many thanks Matt.

The paragraph at the foot of NIM02195 appears to advise employers indirectly how it is possible to make arrangements with a retailer to ensure that a liability to Class 1 NIC is avoided on purchases of a personal nature.

Or am I misinterpreting this!

[Matt@callunatax]

Your reading of NIM02195 is indeed correct. But it doesn't change the liability to the employer, it simply moves the liability to Class1a NIC (payable by employer only) from Class 1 NIC (payable by employee and employer). I will attempt to summarise the main points below:

Class 1a NIC (instead of Class 1 NIC) is payable where the contract is between the employer and the supplier. In this case the employee would only be subject to tax on the benefit provided and no Class 1 NIC. The benefit would be entered on the employee's P11d and the employer would pay Class 1a NIC when forms P11d and P11d(b) are submitted.

Class 1 NIC is payable where the contract is between the employee and the supplier and the employer settles this on the employee's behalf. In such a case the employee would be subject to tax on the benefit by reporting it on their P11d and Class 1 NIC by collecting it through the payroll in the earnings period the payment is made. Employer's NIC is collected at the same time as the employee Class 1 NIC.

When an individual takes an item to the till which they are intending to purchase they at that point are entering into a personal contract. Then if that contract is concluded by using an employer credit card, which is not reimbursed to the employer, the employer has settled an employee personal liability.

By making a statement that this being purchased in behalf of the employer before the item is paid for moves the contract to that between the employer and supplier, so the NIC treatment changes.

Hope this helps, NIC can be very fiddly as you can see, which is why many employers fall foul of this in a PAYE audit.

If you need any further input then please feel free to contact me direct, my details are below.

Regards

[Milbo]

Again thank you Matt,

Goodness knows what will happen when the Coalition plans to merge the two taxes have been finalised.

The taxpayer will not be the one to benefit for sure!

regards,

Mark

[Matt@callunatax]

I know, it will be interesting to see what they come up with especially as there are subtle differences between the two.

I don't think it will be a quick process, so would be surprised if it happens in this oarliment.