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Peter Arrowsmith FCA highlights a selection of NIC matters, and points out that forms E101 will still be seen in certain circumstances.

NIC Holiday Announced in the 2010 Emergency Budget

I had a tip-off that there would be no legislation in place before the scheme comes into effect and indeed no Bill has been presented to Parliament before the summer recess. We appear to be waiting for EC state aid approval and HM Revenue and Customs guidance before knowing whether the start date of 6 September is, in the event, achieved.

"Improving" PAYE

HM Revenue and Customs has issued a consultation document 'Improving the Operation of Pay As You Earn (PAYE)'. The proposals will affect the way that employers deal with Class 1 National Insurance Contributions in exactly the same way as they will affect PAYE itself.

The first proposal is that employers would make a return to HMRC every time that payments are made to employees showing virtually all the existing P14 information. The suggestion is that as most employers use software to prepare payroll this will constitute no burden. Perhaps more tellingly, they say that it will enable them to use more accurate data in their fields of activity, especially student loans and tax credits.

Whether, in reality, HMRC would be able to process such amounts of data within a useful timeframe - given that it can still take several months at least for electronically filed P14s to be fully processed - is entirely another matter.

For the longer term, the second proposal is that employers would feed gross pay details direct to HMRC who would then operate the correct deductions (taking account of multiple employments as regards both PAYE and NIC) immediately, retaining the deductions at the same time and remitting the net pay direct to employees' bank accounts. The employer would have done all the hard work by coding non-taxable and non-NICable items included.

The full document can be obtained at Discussion Document on Improving the Operation of Pay As You Earn (PAYE)

Comments should be sent by 23 September to:

HM Revenue and Customs,
Room 1/40, 100 Parliament Street,
London
SW1A 2BQ

Email: paye.consultation@hmrc.gsi.gov.uk
Fax: 0207 147 2531

[See also HMRC's own article on this at Consultation on Improving the PAYE System - Have Your Say - Ed.]

Goldman Sachs Battle On

HMRC issued a ruling to Goldman Sachs International (GSI) that the exercise of certain options to employees gave rise to a liability to Class 1 NIC. GSI appealed, contending that the staff were supplied by an associated company (Goldman Sachs Services Limited), and applied for a preliminary hearing to determine whether it could be treated as the employer of the employees who had exercised the options. The First-Tier Tribunal held a preliminary hearing, reviewed the evidence in detail, and determined the preliminary issue in favour of HMRC. The judge found that GSSL 'did not have a place of business in Great Britain at any time relevant to these appeals' and held that GSSL was therefore a 'foreign employer' within Social Security (Categorisation of Earners) Regulations 1978 Reg 1(2), with the result that GSI was the 'host employer' within Sch 3 para 9 of those Regs and was the 'secondary contributor' for the purposes of SSCBA 1992 s 7. (Goldman Sachs International v HMRC (No 2), TC507)

No Statutory Sick Pay if No Payment Actually Made

S had received payslips (with earnings over £250 per week) for March, April and May 2006 but the payments stated were never made by the employer, who has since left the UK. The first working day she was ill was 22 May 2006. She received payment of her net wages on 30 August 2006 following a successful claim in the Employment Tribunal for unlawful deductions.

The crux of the case was the fact that Statutory Sick Pay (like National Insurance contributions) works on a payments basis. Thus the actual earnings paid in the qualifying period were below the Lower Earnings Limit and no SSP was due. Neither any alternative construction of the law to avoid injustice or absurdity nor any different considerations due to the intervention of the Employment Tribunal could come to the aid of the appellant. (Linda Seaton v HMRC, TC564)

Tip of the Month - August 2010

Most professionals and affected employers are by now well aware that new EC Regs came into effect on 1 May 2010 and that the E101 certificate has been replaced by the A1.

It should not be overlooked, however, that E101s will still be seen (and will be valid) in the following cases -

• The circumstances covered by the E101 commenced before 1 May 2010 and the employee has not elected to be treated under the new rules instead.
• The employee is a non-EU national. The UK is continuing to apply the previous (1971) Regs to such persons, but such workers moving to the UK will have an A1 under the new Regs and HM Revenue and Customs will have to recognise its validity
• The employee is moving between the UK and either Switzerland, Iceland, Liechtenstein or Norway. These countries have not ratified the new Regs yet (but are expected to do so in due course). In the meantime the previous Regs will apply and thus the appropriate certificate is an E101.

Note that under the previous Regs the maximum length of a posting covered in normal circumstances by the E101 is 12 months - this is still the case where the previous Regs apply. Where the new Regs apply the period is 24 months.

The above is taken from 'NIC Newsletter' (30/07/2010), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.