NIC Update - November 2008

Peter Arrowsmith FCA highlights a selection of NIC matters, and explains why the period of time before the Pre-Budget Report 2008 may be a good time for company owners to consider paying dividends.

Advisory fuel rates

Despite the recent reduction in fuel prices, HM Revenue and Customs has not - as it would have been entitled to - reduced the fuel rate for company cars with effect from 1 December. The next change will therefore be with effect from 1 January (as per the current standard schedule).

Pensions Bill - Class 3 to increase

The Bill commenced its Report stage in the Lords on 7 October and Third Reading was expected on 5 November.

The government tabled an amendment to the Bill on 29 October to allow certain people to pay up to an additional six years' voluntary contributions over and above those permitted under current time limits. This will apply to those who reach state pension age between 6 April 2008 and 5 April 2015, and who already have 20 qualifying years (Home Responsibilities Protection years to be included in the required 20).

Payment will be possible for up to six years from 1975/76 onwards. As this increases the value of the Class 3 contribution, its rate will be increased - but to what amount or from what date, has not yet been stated. In the Lords last week an increase of 50% was suggested, but BBC Radio 4's Moneybox expects a 60% increase.

The DWP believes that up to 555,000 could benefit from the change (about 90% of them women) - though how many will be able to afford to pay, or feel that they would get equivalent means-tested benefits anyway, remains to be seen.

Avoidance scheme disclosure

The National Insurance Contributions (Application of Part 7 of the Finance Act 2004) (Amendment) Regulations 2008 (SI 2008/2678) make changes from 1 November 2008 to the National Insurance avoidance scheme disclosure requirements. These are in line with changes to the tax avoidance scheme disclosure rules made by Finance Act 2007 and Finance Act 2008.

The Finance Act 2007 powers for the Commissioners of HM Revenue and Customs to:

• require, by notice, scheme promoters to explain why a scheme is not notifiable;
• to apply to the Special Commissioners for orders to provide information; or
• to apply for orders that a scheme is or is not notifiable,

all accordingly now extend to NIC too.

The Finance Act 2008 changes in regard to 'Scheme Reference Numbers' (SRNs) also now extend to NIC - the co-promoter rule having been amended to ensure that all promoters receive an SRN, that they are required to pass them to clients and that clients are required to pass those SRNs to other users of the scheme in question.

Statutory Sick Pay - Agency workers

Following the Thorn Baker case in 2007, the Fixed-term Employees (Prevention of Less Favourable Treatment) (Amendment) Regulations 2008 (SI 2008/2776) remove with effect from 27 October 2008 the requirement for agency, etc workers to be serving under a contract of three months or more in order to be eligible for Statutory Sick Pay. This brings them into line with other workers (for whom the requirement was removed in 2002) and reverses the Thorn Baker decision.

The start date is in line with the introduction of the Employment and Support Allowance (see below) and other previously reported SSP changes.

Further changes to Statutory Maternity Pay

The European Commission has published a proposal to amend the Pregnant Workers Directive. This would have the effect, from 2012 or later, of - inter alia imposing on Member States the requirement to pay full pay for the first 18 weeks (vs the current six at 90%). There will be a formal UK consultation in due course.

Employment and Support Allowance (ESA)

From 27 October 2008, the ESA replaced Incapacity Benefit and Income Support (for the sick and disabled) for new claimants. Existing claimants will stay on their existing benefits for the time being, moving onto ESA in phases over the period up to 2013.

ESA - like Jobseekers' Allowance - has a contributory element based on National Insurance Contributions and earnings and also a means-tested element. For the contributory element of ESA the contribution conditions are broadly the same as for Incapacity Benefit.

There is a time limit for claims of three calendar months, but where the claim follows a period of Statutory Sick Pay the time limit is three months from the date the form SSP1 was issued by the employer (this protects the claimant where the employer has been dilatory). In some cases claims can be submitted up to three months before SSP is due to end.

The contributory element of ESA is taxable in all circumstances.

Tip of the month - November 2008

With us all expecting the date of the Pre Budget Report (PBR) to be announced at any time, our minds turn to the matter of 'Income Shifting'. Action is threatened by way of changes that would take effect from 6 April 2009.

Although I cannot envisage how it might work, there must be the possibility of additional measures designed to stop businesses forestalling any new legislation.

Where there are companies with a spouse involved, (and indeed other family members), and the business would ordinarily expect to pay dividends on or before 5 April 2009 and it is not already caught by 'IR35' or the managed service companies legislation, consideration might be given to paying those dividends before the PBR.

As always with dividends (whenever they are paid) the following additional caveats apply:

• ensure that there are sufficient reserves
• remember the effect on values of minority shareholdings
• dividends are not pensionable earnings, although the post-2006 regime offers quite a degree of flexibility
• always pay earnings of at least the Lower Earnings Limit so that entitlement to state benefits is not impaired. (In the case of most directors, a single sum of at least £4,680 (52 x £90)  will suffice this year. Greater care is required with non-directors.)

Reference should also be made to the Tax Faculty Guide on the income shifting proposals. Tax Guide 6/07 is available to both members and non-members at www.icaew.com/taxfac (go to 'Publications and Technical Guidance' section).

All of that said, there are rumours that the proposals for income shifting will be quietly dropped. That would indeed be good news - but perhaps it suits the government for us all to think that, whether it is true or not.

The above is taken from 'NIC Newsletter' (03/11/2008), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright. 

Article Added Saturday, 15 November 2008

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