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Peter Arrowsmith FCA highlights a selection of NIC matters, and warns of a possible NIC charge in respect of overseas holiday homes in certain circumstances.

Earnings periods

A question of earnings periods was considered in John Alexander Lithgow Mason v HMRC Commissioners (SpC 712). Mr Mason worked on North Sea oilrigs and had a two-weekly earnings period. Working two weeks on, two weeks off he received substantial earnings in alternate pay periods and only what was described as a retainer of £69 in between the regular spells of work. M contended that whilst he saw a considerable reduction in their own National Insurance contributions as a result of this pattern, after 1985 considerable sums of Employers' National Insurance were paid on the earnings (almost the same as if there had been a four-weekly earnings period). But because earnings-related state pension is based on what the employee pays and is unaffected by the employer's contributions and because the Commissioner is unable to direct what was then the Secretary of State to issue 'directives' to change the regular earnings period to a four-weekly one, there was no alternative but to issue an interim decision in favour of HMRC.

The Commissioner expressed his considerable sympathy with the appellant, and hoped that the authorities might be able to reach an agreement with M outside of the legal parameters within which his decision making had to be confined. Whether they will do so is, of course, perhaps unlikely and certainly we shall never find out one way or the other.

Shares - joint elections to transfer Employers' NIC

HMRC, at its Employee Shares and Securities Unit (ESSU), is required by law to approve elections to transfer Employers' National Insurance to the employee. Those making an election can either use the model forms that HMRC provides or use their own wording, provided that the latter includes all the matters specified in the legislation. In recent times ESSU has noted the inclusion of clauses that are outside the list of matters that the law requires should be specified, in particular:

• provisions relating to transfer of employment within the group whereby the secondary contributor changes and the employee undertakes to enter into a new election with the new employer,
• inclusion of an indemnity in favour of the company against any expense incurred if the employee fails to satisfy their liability for secondary NIC. This expands the scope of the joint election and cannot, say ESSU, be approved. ESSU recommends that if the employer requires such an indemnity then it should be included within the option agreement or some other similar document which does not require HMRC approval.
• inclusion of a power of attorney in order to enable enforcement of either of the above or any other aspect of the election. The additional comments made under the previous bullet apply equally here.

Where elections are presented for approval on and after 1 December 2008 with such clauses as those mentioned above (or indeed other provisions not required by the legislation) included then approval will not be given.

Incorrect P11D(b) / Class 1A Penalty Notices

Once again, there have been reports that penalty notices have been sent out (for four months' worth of penalties) for supposedly non-filed 2007/08 returns which were in fact not only filed, but filed on time. In some cases, filing was electronic and e-acknowledgements received well before the filing date of 5 July. HM Revenue and Customs subsequently confirmed that there are such notices issued in error. HM Revenue and Customs has now identified the affected cases and will discharge the relevant notices centrally. HMRC is also writing to each employer affected to confirm the discharge, and to apologise.

Tips and gratuities

The Department for Business, Enterprise and Regulatory Reform has now issued a consultation document about the proposal to ensure that employees receive tips in addition to the National Minimum Wage (NMW).

The consultation runs until 16 February 2009 and the document can be downloaded from www.berr.gov.uk/consultations/page48902.html or obtained by post from:

BERR Publications
ADMAIL 528
LONDON
SW1W 8YT

Phone: 08450 150010.

The proposal is simply to amend National Minimum Wage Regs 1999, Reg 31 and there are no plans to change the current NIC exemptions that apply in certain circumstances. It is thought that around 45,000 employees will be favourably affected.

There is also to be a campaign to make members of the public aware that tips they leave will not be used to subsidise an employer's obligation to pay the NMW.

Responses should be made via Survey Monkey ( http://tinyurl.com/6d4xeo ), by email to  tippingconsultation@berr.gsi.gov.uk  or by post to:

Jenny Celaire
National Minimum Wage Unit
BERR
1 Victoria Street
LONDON
SW1H 0ET

Fax: 0207 215 0227

National Insurance Numbercard to disappear?

Minutes of a meeting of the HM Revenue and Customs Employer Consultation Forum reveal that consideration is being given to stopping the issue of future National Insurance Numbercards and replacing them with something else. The reason given is that there is evidence that these cards are regularly counterfeited and/or used incorrectly as proof of identity. Existing Numbercards would not be affected.

Consultations with individuals (i.e., not employers or their representatives) earlier in the year considered three options:

• A redesigned card with better visuals and clearer HMRC branding but with no added security or
• A smart card with similar visuals and with the National Insurance number itself held securely in a chip or
• A revised letter with a prominent statement of the National Insurance number and important information about what to do and what not to do with the number, but no card.

The latter is the option most favoured to date, though in what way it will be less susceptible to fraud and copying is, of course, somewhat questionable.

Tip of the month - December 2008

The 2008 legislation preventing a charge (as a benefit in kind) to tax and Class 1A where an overseas holiday property is owned through a company (UK or foreign) is now widely known and is deemed always to have had effect. The latter fact is rather useful since not even what is now HM Revenue and Customs realised that a benefit would arise in such circumstances.

However, beware - as the relief only applies to companies owned by individuals and where there is no other activity.

This means that where shares are owned by a trust, the relief will not apply. Though HMRC had not generally pursued the benefit at all in the past, the fact that there is now an exception which does not cover trust ownership will no doubt mean that this aspect will be on their radar from now on (with six years' arrears).

Further, the relief is only derived from a change to the income tax benefits in kind legislation - so it won't of itself stop the company being counted as an associated company for small companies' corporation tax purposes. So if there is some part-time letting income this may prejudice application of the new relief if that activity is not considered to be incidental to the ownership of the property.

Ed. Note - For HM Revenue & Customs' published position on owning (and letting) holiday homes abroad through a company, see http://www.hmrc.gov.uk/news/hol-home-abroad.htm and http://www.hmrc.gov.uk/budget2007/bn50.htm

The above is taken from 'NIC Newsletter' (01/12/2008), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.