Class 1 National Insurance contributions on expenses

piewackett

HI

We have our own limited company and have had to relocate for access to contracts etc leaving out eldest son at boarding school. I note from HMRC website that if the company pays for the fees directly although the contract is still between the employee and the school, then class 1 national insurance contributions are payable by the employee. Can anyone tell me if secondary class 1 contributions will be required from the company in relation to this expense? can't seem to get clarification on this! I am aware if contract is between school and company that class 1A contributions will be due but this is not an option really.

thanks

Nicola_Ed

Hi

In a word - yes. See the HMRC guidance - you need to add the amount to the paryoll. NIC means employers and employees.

http://www.hmrc.gov.uk/paye/exb/a-z/s/school-fees.htm

Your employee contracts with the school, but you pay the fees directly

Definitions or restrictions

Your employee contracts with a school for the education of their child, but you pay the fees directly to the school.
What to report, what to pay

For employees earning at a rate of less than £8,500 per year:

• report on form P9D - section A(2)
• add the value of the benefit to the employee's earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

For company directors or employees earning at a rate of £8,500 or more per year:

• report on form P11D - section B
• add the value of the benefit to the employee's earnings when deducting and paying Class 1 NICs (but not PAYE tax) through your payroll

Work out the value to use

The value to use is the amount of the fees you pay.

piewackett

Thanks Nicola

It is as I thought. Seems to be little benefit in getting company to pay the fees as Corporation tax only at 20% compared with combined NI rate of around 25%.

Nicola_Ed

Hi

It may be the best option for the company to pay - depending on the alternative. If you need say £10,000 to pay fees, if you were going to take extra salary to leave you with a net amount of £10,000 this would produce more tax and NIC than the company paying. ( The fomer having to be grossed up for tax and employees NIC). If the alternative is to pay the fees from savings/company dividends then the company paying is likely to e a more expensive option. As ever, it's all about the maths...... :-)