When Employers consider their exposure to national insurance contributions for Directors and employees, they tend to think only of the Employer’s contributions due on the salaries paid. However, significant further NIC liabilities can arise in respect of benefits-in-kind.
There are two types of potential NIC on benefits provided:
- Class 1 NIC – payable by both employer and employee at the date the benefit is provided
- Class 1A NIC- payable by the employer only and due by 19 July following the tax year during which the benefit was provided.
Currently the employer’s rate is 13.8% and the employee’s is 12%.
Most employers do not realise that they may have to account for Class 1 NIC and this could prove costly if subsequently found by HMRC during a PAYE review visit.
Class 1 NIC occurs mainly where an employer meets an expense contractually incurred by the employee. An example of such expenditure would be a home telephone, the contract for which is in the director’s/employee’s name but which the company pays. Regardless of the fact there may be some business use, strictly the employer should account for Class 1 contributions on the payroll for the amount paid at the date it was paid.
So if a home telephone bill of £250 was paid by the Employer on 31 August 2014, employer contributions of £34.50 (13.8) and employee’s NIC of £30 (12%) should be entered on the payroll records at that time and paid to the Collector by 19th September.
Although the employer accounts for NIC, no tax is deducted. Instead the benefit is recorded on the PIID at the year end. Obviously this can cause considerable confusion.
Contrast this with the position that would arise had the home telephone contract been in the name of the Company – Class 1A NIC would then be due. The director/employee would not have to pay any national insurance. The employer’s liability would still be £34.50 but this liability would be recorded on the PIID at the end of the year as opposed to the wages record, and the date of payment would be 19 July following the tax year in which the expense was paid.
The completion of PIIDs and accounting for NIC is a complex area and it is always wise to seek professional help. Green & Co would be happy to help with any queries you may have.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.