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Peter Arrowsmith FCA highlights a selection of NIC matters, and looks at the new 'NIC Holiday' for certain employers.

National Insurance Contributions Bill

The long-expected National Insurance Contributions Bill is now proceeding through Parliament, having only been introduced into the Commons on 14 October 2010. It had its second reading on 23 November when it was committed to a Public Bill Committee scheduled for 2 December and to be concluded on or before 9 December.

The Bill introduces the NIC Holiday Scheme with retrospective effect from 6 September 2010 in respect of businesses that commenced on and after 22 June 2010. It also contains provisions to increase the rates of NIC across the board by one percentage point from 6 April 2011. The higher-than-inflation increases to the Employer and Employee Earnings Thresholds, and the reductions in the Upper Earnings Limit and Upper Profits Limit all from the same date will be made by Statutory Instrument early next year.

Class 2 Payment Date Changes

HMRC has now confirmed the change I reported previously. Mailings about the change are being sent to affected contributors from 22 November in the case of existing direct debit payers and with the January quarterly bills to others.

Salary Sacrifice - Canteens

HMRC has issued a note (available at Salary Sacrifice and Canteen Arrangements) about the abolition of the canteen exemption from 6 April 2011 when used in connection with salary sacrifice arrangements (FA 2010 s 60).

The note makes two key points. First, where current mechanisms make use of any form of tally of monetary value HMRC contends both before and after next April that this constitutes the provision of value or money and is not within the ITEPA 2003 s 317 exemption. Any 'payments' will, on the HMRC view, be liable to Class 1 National Insurance contributions.

After the change next April, this will stay the same, but any other arrangements which, in the event, fail the canteen exemption requirements, will be liable to Class 1A National Insurance contributions.

Jointly Owned Cars Still a Benefit in Kind

In Samson Publishing Ltd, EJC Fehler, NS Fehler (TC 749) the directors owned cars jointly with the company. They each owned other cars which they used for private purposes. HM Revenue and Customs contended that the standard benefit in kind charges arose and ultimately the Tribunal agreed. The case had a similarity with the 2004 case of Christensen v Vasili, though there the company had purchased the car outright and then sold a proportion of it to the director. Either way, the benefits code applies for Income Tax and therefore for Class 1A NIC also.

State Pension Increases

We already knew that at long last the State Pension was going to be increased from 6 April 2011 in line with the higher of earnings and prices. This is confirmed by the Up-rating of Basic Pension etc. (Designated Tax Year) Order 2010, SI 2010/2650, which now requires the Secretary of State for Work and Pensions to carry out a review in relation to the level of earnings. That review also applies to the standard minimum guarantee in Pension Credit.

Tip of the Month - December 2010

(Readers in London, the South East and East Anglia please look away now).

The 'NIC Holiday' provides a full rebate of employer National Insurance contributions, subject to many other conditions, on payments made in the first 12 months of the employee's employment. Since new employees tend not to start on the first day of a wage or salary payment period this means that relief in most cases will be in respect of something less than a full 12 months' wages/salary. For example, an employee starts on 15 November 2010 and is paid on the 22nd monthly for the calendar month.
 
The salary payments eligible for relief will be the usual 12 made in the period from 15 November 2010 to 14 November 2011, i.e., the 12 payments from 22 November 2010 to 22 October 2011 inclusive. The last 11 of these are each for a full month's salary but the first covers only half a month.

I'm not aware of any law that says all employees must be paid on the same day as one another. Indeed, in large firms different categories of employee may be paid on different days of the month or at different intervals.

Apart from the extra work involved, I see no reason why in the instance I have quoted, the employee should not be paid on the 14th of each month for the month ended on that day and other employees likewise in relation to their own start days. The contract of employment should make clear the actual payment dates and can be varied after the NIC Holiday is no longer in point for any employee.

This would be messy with a computerised payroll but might be more easily managed in a small organisation with only a handful of employees where perhaps (notwithstanding that the year-end P35 and P14s will nonetheless have to be filed online) the payroll is prepared manually.

I doubt many will want to bother with the above exercise, but if my suggestion does no more than highlight up front that it's not a full 12 months' relief you're going to get in most cases, then my point has been worthwhile.

The above is taken from 'NIC Newsletter' (01/12/2010), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.