Too late

Class 1 National Insurance liability after making good

During a compliance check HMRC discovered the taxpayer had paid a mileage allowance to its two directors but no logs were kept to identify the business mileage. Further the taxpayer had paid health insurance premiums for the directors but not debited them to their loan account. HMRC said these payments had constituted earnings and class 1 National Insurance should have been paid. It raised assessments and penalties.

As a result of HMRC’s findings the taxpayer debited premiums to the directors’ loan account and agreed to reduce the mileage allowance to remove the directors’ home-to-work journeys. It also adjusted the loan account to claw back the overpayments. HMRC persisted in its claim that class 1 National Insurance remained payable. The taxpayer appealed.

The First-tier Tribunal decided that the payments constituted earnings under s 3 of the Social Security Contributions...