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Peter Arrowsmith FCA highlights a selection of NIC matters, including a significant change in the UK Social Security system commencing from 6 April 2010.

NIC in Europe

HM Revenue and Customs has at last published an outline of the new rules that will take effect on Saturday, 1 May 2010 - see National Insurance Contributions: New Rules for Workers Moving Around the EU on or after 11 May 2010 and their Employers.

Further, in readiness for these new rules, the Recovery of Social Security Contributions Due in Other Member States Regulations 2010 (SI 2010/926) have been laid and come into effect on the same date. They enable the UK to meet its obligations under the new EC-wide rules that debts can be enforced across the frontiers of Member States. Interest will be charged from the date that a foreign authority's claim is recognised in the UK (or shortly thereafter) on foreign contributions that are equivalent to Class 1, Class 1A, Class 1B and Class 4 contributions in the UK.

Deferment

The 2010/11 claims forms CA72A (multiple employments) and CA72B (employed and self-employed), together with accompanying notes, are now available to download at Find a Form on HMRC's website. (Enter the form number - no spaces - in the search box).

COMPS to End

The present Government has confirmed its intention to abolish contracted-out money purchase rebates from the long-anticipated date of 6 April 2012. The logic for this seems to be the introduction of what we now call NEST (formerly 'Personal Accounts'), though this does not begin until October 2012 - and even then only for the very largest employers.

Not Much Change

The Social Security (Contributions) (Amendment) Regulations 2010 (SI 2010/834) confirm the existing limits applying as for 2009/10 - the only change being the increase in the Lower Earnings Limit to £97 per week.

Maximum Contributions

You will recall that this time last year, the Upper Accrual Point replaced the Upper Earnings Limit as the point at which benefit entitlement ceases to accrue and the point at which contracted-out rebates therefore also stop.

The Social Security (Contributions) (Amendment No. 3) Regulations 2010 (SI 2010/646) adjust the computation of refunds where a person has more than one job so that only the correct (i.e., reduced) amount of rebates are taken into account. This applies to maximum contributions calculations for 2009/10 onwards.

Self-Employment in the Construction Industry

The Treasury consulted last year on what was described as 'false self-employment' in the construction industry, proposing a three-point test which - if failed - would result in the relevant workers being treated as employees.

A summary of the 117 consultation responses has now been published.

Fairly widespread concern that the tests would catch a number of people who would be properly regarded as self-employed under case law has led the government to commit to amending the tests and consulting further with those affected. It is, however, determined to legislate. It states, though, that it is not the intention to bring into PAYE/Class 1 NICs those who are currently correctly treated as self-employed under case law.

Also reiterated is the need not to introduce the change whilst the construction industry remains in the fragile state in which it currently finds itself. One would have to be an extreme cynic to suggest that it might in any event be wise not to provoke workers in East London until after the Olympic Games site is complete.

Low Earnings Threshold

The accrual limits for State Second Pension for 2010/11 will be £14,100 (£13,900 in 2009/10) and £32,200 (previously £31,800). The former has been fixed by the Social Security Pensions (Low Earnings Threshold) Order 2010 (SI 2010/468) and the latter follows on by formula.

These limits do not in any way affect employers or the recording of National Insurance contributions by them.

Six Year Old NIC in Dispute

The cases of Goldman Sachs International v CRC and Goldman Sachs Services Ltd v CRC reached the Upper Tribunal (Tax and Chancery Chamber) in respect of a fundamental procedural point.

GSI, GSSL and a third company had been party to payments from an employee benefit trust by way of the grant of options to employees of GSI/GSSL over redeemable shares in the third company, shares in which increased in value after the grant of options.

HM Revenue and Customs had issued Notices of Decision against GSI in December 2002, the transactions having taken place over the period 1997 to 2000. In March 2009, HMRC issued notices that GSSL was liable to pay the NIC claimed to be due. GSSL appealed on the grounds that the NIC, if due at all, could not be collected because of the Limitation Act 1980.

The First-tier Tribunal had held that its proceedings had priority over county court recovery proceedings such that the latter had to be deferred until the appeal had been determined - both Goldman Sachs employers appealed to the Upper Tribunal.

The Upper Tribunal held that the First-tier judge was wrong and that there was no point in examining the effectiveness of the scheme used by GSI/GSSL if the NIC could not be recovered.

Thus the taxpayers' appeals were allowed and the parties are no doubt currently seeking the county court repudiation of the proceedings against GSSL as being out of time.

More will no doubt be heard in due course about the technical efficacy of the transactions undertaken.

Should have Known Better

The appeal made by a Chartered Accountant against the issue of a Personal Liability Notice (to transfer unpaid NIC to a company officer personally) was rejected in the case of Leslie Livingstone v HMRC Commissioners (TC369).

Mr Livingstone had perhaps unwisely agreed to become the sole director of a company (possibly a client, but this is not known) where the owners were unable to continue so to do and senior staff declined directorships. NIC remained unpaid for 17 months and some attempted cheque payments bounced. Not only was Livingstone neglectful generally, but this was compounded by the fact that he was a director of another company which had paid - thus being taken to illustrate his knowledge of the requirement to pay - and the fact that when the trade and company assets were sold the proceeds were used to pay off the bank overdraft and monies due to himself ahead of HMRC.

It was noted in the case that when this legislation was introduced the then Government Minister gave an assurance that a PLN was not to be issued unless the senior officer in the relevant Department was satisfied that there had been at least serious neglect. However, as the word 'serious' does not appear in the legislation, this was outside the remit of the Tribunal.

Further, the authorities had stated that PLNs were introduced to protect the National Insurance Fund against 'phoenix companies'. This is not the first known PLN case where that matter is not in point.

Unpaid Class 2

The case of Martin Breen v HMRC Commissioners (TC383) involved Mr Breen challenging the NIRS and NIRS2 computer records that a number of years during which he was self-employed were not qualifying years. Ultimately, he could produce no convincing evidence to lead to a view that the official records were unreliable and the appeal was dismissed.

In addition, it appears from the case report that Mr Breen was unaware that a qualifying year needs 52 weekly contributions for 1978/79 onwards (previously 50). Whilst there were clearly other issues too, it appears that Mr Breen may have caught himself out by trying to be clever and only paying 50 weeks (where he did pay) rather than for all the weeks for which he was liable.

Tip of the Month - April 2010

On 6 April 2010, a significant change in the UK Social Security system (legislated for fifteen years ago, in fact) begins to take place.

The State Pension Age (SPA) for women rises from 60 to 65 over a ten-year period.

In tandem with this, the time at which women who are still working, will stop paying National Insurance contributions also rises. Employers, in particular, need to take care that they do not stop the deduction of employee contributions too early. There is little meaningful guidance in this year's Employer Helpbooks or the Employer Further Guide (CWG2) where the matter is only lightly touched upon (in fact, it is not mentioned at all in the NIC for Company Directors booklet).

Before the deduction of employee contributions is ceased by the employer, it should have evidence of age. Whilst this can be sight of the birth certificate, I prefer a 'Certificate of Age Exception' (CA4140) issued by National Insurance Contributions Office. If the woman concerned is claiming the state pension, there is an option on the claim form to request such a certificate. Others can obtain one by writing to -

HM Revenue and Customs
National Insurance Contributions Office
Individuals Caseworker
Benton Park View
Newcastle upon Tyne
NE98 1ZZ

As well as affecting the absolute deduction of contributions, this also delays from 60 the age at which a woman in a contracted-out pension scheme has to pay not contracted-out rate NIC (as does her employer), instead of contracted-out rates.

Employers should note the following increased SPAs for women over the next 12 months -

Self-employed women are also affected. Class 2 liability should cease from the Saturday before the extended SPA. Class 4 still turns upon whether SPA has been reached on or before the start of the tax year - that age no longer being 60.

The above is a selection of items taken from 'NIC Newsletter' (01/04/2010), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.