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Peter Arrowsmith FCA highlights a selection of NIC matters, and sounds a warning about the potential problems and pitfalls of 'pooled' cars.

Integrating 'the Operation of' Tax and NIC

Following the earlier call for evidence the Treasury has issued a 'Next Steps' document available at Integrating the Operation of Income Tax and National Insurance Contributions - Next Steps

There are to be set up two groups:

1. to look at bringing the meaning of earnings for the two duties into line and
2. to consider moving NIC to an annual, cumulative and aggregated basis.

The document also summarises the responses to the call for evidence and sets out a timetable.

Disguised Remuneration

The tax provisions may have come into effect for the whole of the 2011/12 tax year, with forestalling measures from last December also, but the equivalent Class 1 NIC charge does not apply until 6 December 2011 (the Social Security (Contributions) (Amendment No. 5) Regs 2011 (2011/2700)). Any transaction where the tax charge arises before 6 December 2011 will not incur an NIC charge (by reason of the new law alone). The same is true of the catch up charge on 6 April 2012 in respect of measures undertaken between 9 December 2010 and 5 April 2011 inclusive which were not reversed.

Pensions Act 2011

The Bill received Royal Assent on 3 November.

It completes the structure for compulsory pension scheme enrolment to be phased in from next October and confirms the previously reported delay to October 2020 in the imposition of the increase to 66 in State Pension Age (SPA) for both men and women.

Further State Pension Age (SPA) Extension

The rise in SPA from 66 (to be achieved by October 2020, as mentioned above) to 67 will be accelerated to take place over the period from April 2026 to March 2028. Although never stated on occasions such as this, it means that employees and the self-employed alike will also pay National Insurance contributions for the extra period up to that extended pension age.

GAAR for NIC?

Graham Aaronson has presented his report on a General Anti-Avoidance Rule (GAAR) that was commissioned by the Government last December.

He recommends a narrowly targeted GAAR to cover Income Tax, Corporation Tax, Capital Gains Tax, Petroleum Revenue Tax and … National Insurance contributions.

The Government will respond to the report in the Budget next Spring.

Regional NIC Holiday

At the risk of boring those of you in London, the South East and East Anglia - there had been 8,761 successful applications as at 25 October 2011.

One year into the three-year scheme, the Coalition's target of 400,000 such applications is looking a tad over the top.

Tip of the Month - December 2011 - Pool Car Pitfalls

Beware 'pooled' cars; beware clapped out old bangers; and most of all beware clapped out old bangers that you call a pooled car.

Last year's Tribunal case Yum Yum Ltd v HMRC (TC616) highlighted the dangers. The company alleged that a car (which was the only company vehicle and was kept overnight at the controlling director's house) was a 'pooled car' on the grounds that company records were kept at the house and thus this was property occupied by the company.

That contention was dismissed, as was the appeal. And whilst the judge sympathised that the car benefit scale charge was completely disproportionate to the benefit actually generated by the provision of the car he agreed with HMRC that this was simply as specified by the legislators. The unfairness complained of was exacerbated by the fact that the car in question was a 1997 Jaguar XJ Sport with a list price of £38,879 when new, a purchase price of £14,000 and present value of £250.

There are three lessons here -

First, the pooled car provisions are notoriously difficult to fall within and I've never yet come across a pooled car outside the public sector where the treatment stood up to HMRC scrutiny. And even if you genuinely stand half a chance, you need good records to prove the case.

Secondly, it is not just home to work mileage allowances, etc., where an allegation of a second place of business at the director's home is unlikely to win over HMRC, but car benefits too.

Thirdly and most easily solved of all, be aware of cars on your clients' books that had a high list price compared to their current value. Unless there is no private use at all (which is also usually difficult to prove to the satisfaction of HMRC) then consider a transfer of the car to a suitable individual (the controlling director, say) so that it ceases to be an employer provided car at all. This can be done either for the current low value or free of charge, but in the latter case don't forget the P11D entry and Class 1A liability. The latter will be small, I admit, but the penalties for omitting it are not.

The above is taken from 'NIC Newsletter' (01/12/2011), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.