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Peter Arrowsmith FCA highlights a selection of NIC matters, and provides a helpful tip for those working on overseas secondments.

Integrating Tax and NIC

… or rather, just the operation of them - as announced in the March Budget.

A consultation document is scheduled for the Autumn but ahead of that the Treasury and HM Revenue and Customs have issued a joint call for evidence. It is available at Integrating the Operation of Income Tax and National Insurance Contributions. It's a little over a dozen pages and I encourage everyone to contribute to this once-in-a-lifetime opportunity to considerably harmonise the two systems. That said it completely ignores the self-employed.

(Don't worry about putting me out of a job - given the speed with which the wheels of government turn, I'll have long retired before anything meaningful happens.)

Adjudicator's Report

The Adjudicator's Annual Report for the year ended 31 March 2011 has been published. In recent years there has been little mention of National Insurance separate from Income Tax.

NIC Holiday

At the risk of boring even those of you who are inside the relevant geographical areas, this is just to record that by 8 July there had been 5,137 successful applications (Coalition Government expectation was 400,000 applications by 31 August 2013). The highest month was May - which I guess was due to accountants making belated applications in time for submission of the 2010/11 P35s.

Accountancy Age claims that the Treasury is trying to improve the scheme so that it is better used.

Comp Rebate Abolished

Further to the confirmation earlier this year that the only contracted-out rebates from 6 April 2012 will be for the few salary related schemes now remaining, two further Regulations make necessary consequential amendments. Mainly of interest to pension fund trustees they are, for the record, the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2011 (SI 2011/1730) and the Pensions Act 2007 (Abolition of Contracting-out for Defined Contribution Pension Schemes) (Consequential Amendments) (No. 2) Regulations 2011 (SI 2011/1724). The latter provide, amongst other things, that existing COMP contacted-out certificates will cease to have any validity on 6 April 2012.

'Lost' National Insurance Contributions

I was recently interviewed by TaxationWeb about the scare stories in the general press earlier in the year. See the July link at The "Missing Millions" in National Insurance Contributions - What's the Real Story?

HMRC Accounts

The HM Revenue and Customs Accounts for the year ended 31 March 2011 note that the cost of collecting NIC in 2010/11 was 0.31p per pound (vs 0.35p the year before). This compares with 0.96p per pound for Income Tax (vs 1.13p). Also noted is that in 2009/10, HMRC collected £157 billion in Income Tax and £97 billion in National Insurance contributions.

The Accounts also refer to 'Non-Matching National Insurance Items' (see previous news item above) and confirm that over the period from 2003/04 to 2008/09 the proportion of P14s that could not be matched fell from 5% to 2.6% - this largely due to the effect of online filing, no doubt. For 2008/09 1.5 million new items were added to the suspense file bringing the overall total to 119 million items. The Accounts also state that 86% of these items have earnings below the Earnings Threshold so that individuals' benefit claims cannot be affected unless there are other similar jobs that would give entitlement when combined. This is not the full picture, however, as the statement overlooks the fact that benefits are earned at the point of the Lower Earnings Limit, not the (higher) Earnings Threshold. The proportion where there is no effect seems therefore to be overstated at 86%.

Another Lost IR35 Cause for HMRC

The First-tier Tribunal held that the IR35 provisions did not apply to ECR Consulting Ltd (TC1174).
The owner worked under a number of contracts averaging about six months and engaged an agency to negotiate prices. There was no obligation for either party to work for the other and the contract could be terminated at any time.

HMRC Says "You're Not an Employee!"

Not only that, this is not the first time*

Paul Anthony Bell (TC1234) was a self-employed building subcontractor. He had an accident at work and claimed Industrial Injuries Disablement Benefit. This is only payable to employees and so the claim was refused. At this point B contended that - in relation to the particular contract on the day of the accident - he was never self-employed at all.

*This case is similar in sequence, though naturally not in all the precise detail, to that of another building subcontractor, Brett Convery (TC401) - he too suddenly decided after an accident that he had always been an employee! (And also failed in his quest).

No Class 4 Relief on Unit Trust Investment

Brijesh J Patel (TC1228) - a self-employed dentist - had invested in a unit trust which gave rise to a 100% Industrial Buildings Allowance claim. He appealed against the decision refusing Class 4 relief. The Tribunal had no difficulty in establishing that the law gave no entitlement to the relief; the fact that his accountant had obtained relief in other cases did not alter that; and the latter fact did not create any legitimate expectation of relief.

Tip of the Month - August 2011

I was reminded recently of a valuable lesson I thought I'd already learnt!

A client asked about an employee being sent from Canada to work in the UK for 18 months. The Canadian advisors had already stated that UK contributions would be due after the first 52 weeks. I was aghast as they hadn't seemed to realise that there is a Double Contributions Convention between the UK and Canada that provides for home country coverage where there is a secondment of five years or less.

Only in conversation did it emerge that the employer and employee were actually in Quebec (yes, I know it was silly of me - but this was, after all, BEFORE the banners and protests when William and Kate visited). Quite simply, Quebec isn't covered. But it's not excluded by the defining of the territories affected accordingly, but by excluding members of the Quebec Pension Plan.

Lesson learnt - and fully refreshed. Always check out the regions, etc concerned in international movements as the rules you think apply may not in fact do so.

The above is taken from 'NIC Newsletter' (01/08/2011), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.