Enter Your E-mail

Peter Arrowsmith FCA highlights a seclection of NIC matters, and provides a timely tip for employers and employees in view of the forthcoming increase in car fuel benefit.

National Insurance Contributions Bill

The Bill was considered in Committee on 15 January. After a witness session in the morning with Treasury and HMRC officials, a mere 91 minutes in the afternoon enabled the Bill to be reported without amendment. During the morning the Financial Secretary to the Treasury, Jane Kennedy, admitted - perhaps not surprisingly to many of my contacts - that she was not aware that there were different definitions of 'earnings' for tax and NIC purposes. Officials successfully fobbed off the MPs with the statement that the recently issued document on alignment concludes that there is no benefit to be gained from making NIC cumulative. That issue is though a completely separate one to the definition of earnings. Draft Regulations were also made available in support of the Bill. These do no more than make changes in connection with earnings factors in line with the purpose of the Bill and introduce the requirements on employers to separate out, pay period by pay period, earnings from the Earnings Threshold to the Upper Accrual Point (UAP) and from the UAP to the Upper Earnings Limit, and to transfer those annual totals onto the P14/P60. The Third Reading took place on 31 January.

Pensions Bill

The Bill proceeded through Committee stages in the Commons which continues into February.

Modernising Powers Consultations - Class 2 NIC, and Statutory Payments

With the penalty regime for the main taxes and employers' NIC returns due to be revised from 2009 following Finance Act 2007, Sch 24, HMRC has now turned its attention to lesser taxes in a further consultation document. This was one of three related documents issued on 10 January and is entitled 'Modernising Powers, Deterrents and Safeguards - Penalties Reform: The Next Stage'.

The current Class 2 penalty is fixed for failing to notify the start of liability within three full calendar months. The penny has at last dropped that where a person has failed to notify and now does so, it is not good customer relations likely to foster future disclosures that the first HMRC response to a new business is to issue a penalty notice. Further, about two thirds of such (automated) penalty notices are subsequently cancelled for various reasons. It is proposed to remove this penalty, but not the obligation to register, and replace it with a penalty geared to both tax and NIC unpaid as a result of late notification. Changes are also mooted for Statutory Payments failures but the document notes that HMRC needs to work with other government departments responsible for these in order to achieve alignment with the 2007 legislation and these further proposals. Comments should be made by 6 March to: powers.review-of-hmrc@hmrc.gov.uk ,by fax to 0207 147 2375 or by post to:

HMRC Review of Powers
Penalties Reform: The Next Stage
Room 1/72, 100 Parliament street
London
SW1A 2BQ

The documents can be downloaded from  www.hmrc.gov.uk/consultations/index.htm

New Regulations

The Social Security (Contributions) (Amendment) Regulations 2008 (SI2008/133) specify the 2008/09 Lower Earnings Limit, Upper Earnings Limit and Earnings Threshold in line with the Treasury announcement of last October. The Social Security (Contributions) (Re-rating) Order 2008 has been published in draft and sets the increased rates of Class 2 and Class 3 contributions for 2008/09 and the revised upper and lower profits limits for the same year. It will be finalised after debate in the Commons and the Lords.

IR35 Cases

There has been a recent spate of Special Commissioners' cases concerning service companies. They are -

First World Software v HMRC Commissioners (SpC 652) - taxpayer won

M K M Computing Ltd v HMRC Commissioners (SpC 653) - HMRC won

Dragonfly Consulting Ltd v HMRC Commissioners (SpC 655) - HMRC won

Datagate Services Ltd v HMRC Commissioners (SpC 656) - taxpayer won

Interest on Class 4 Repayments

Between now and the end of May, HMRC will be issuing cheques representing repayment supplement on refunds of Class 4 contributions made by the former Contributions Agency and National Insurance Contributions Office (mainly resulting from repayment claims under the maximum liability provisions). Repayment supplement was due on repayments of Class 4 contributions from 19 April 1993 but the authorities thought that this did not apply where the refund was not made by the then Inland Revenue. Some repayments made after the merger also did not include the repayment supplement, although the majority did from January 2003 and all from 28 June 2005. In addition it had also been thought that as the 1993 change came into effect on 19 April 1993 it did not apply to refunds for 1992/93 and earlier years. HMRC now accepts that the legislation applies to all applications made on and after 19 April 1993 (for any year). Consequently, all Class 4 repayments made from that time to 28 June 2005 are being reviewed by NICO and no further action is required unless nothing has been heard by the end of May 2008. If, after May 2008, it is necessary for persons affected or, where relevant, their next of kin/legal personal representative to pursue the matter, contact should be with National Insurance Contributions Office, Deferment Services, Tel: 08459 157141, or by writing to:

HM Revenue & Customs
National Insurance Contributions Office
Deferment Services
Room BP2301 Benton Park View
Newcastle upon Tyne
NE98 1ZZ

In many cases it is doubtful whether it will be economic for tax agents to pursue this where a supplement cheque does not arrive as a matter of course. Perhaps only for very large repayments or those where repayments for a number of years were made, all at the same time.

Low Earnings Threshold

The accrual limits for State Second Pension for 2008/09 will be £13,500 (£13,000 in the current year) and £31,100 (currently £31,000). The former will shortly be fixed by the Social Security Pensions (Low Earnings Threshold) Order 2008 and the latter follows on by formula. These limits do not in any way affect employers or the recording of National Insurance contributions by them.

Corrected National Insurance Numbers

Later in 2008, HMRC will be transferring PAYE records onto the NIRS2 computer (a scary prospect, I know). Ahead of this, during summer 2008, HMRC will be undertaking a comparison of its current database (COP) with the records held on NIRS2. It is expected that a considerable number of missing or incorrect National Insurance numbers (NINOs) will be traced as a result of this. Where this is the case, a notification of the correct NINO will be issued to the employer on paper form P46-5(T) - the information will not be sent electronically.

DWP Agencies

After short lives, The Pension Service and the Disability and Carers Service - both agencies of the Department for Work and Pensions - are to be merged into a single Pension, Disability and Carers Service with effect from 1 April 2008.

Tip of the Month - February 2008

From 6 April 2008, the multiplier for car fuel benefit increases from £14,400 to £16,900 - an increase of 17.36%. This therefore provides a fresh prompt for the not inconsiderable number of employers who presently continue to provide fuel along with company cars, (still anything up to about half a million employees being affected), to consider withdrawing the facility - it is very often not economic. In so many cases, drivers would find it cheaper to pay for all fuel, than to pay the tax charge. The proposition for change that I first made in May 2006 is that the employer:

• Saves the cost of the fuel
• Saves the Class 1A NIC of 12.8% on the (non-commercial,overstated) fuel benefit charge
• But pays for business fuel on a mileage basis at HMRC rates (currently 7-19p per mile - depending on the car's engine size and fuel type). The VAT can still be reclaimed if the employee provides garage receipts (not necessarily with EVERY expenses claim, but enough to cover past business mileage) Thus the employer effectively avoids the cost of paying for the employee's private fuel.

The employee:

• Saves the income tax on the fuel benefit charge
• Pays for all fuel but receives non-taxable/non-NICable reimbursement for business miles.

In many cases, just looking at the employee's finances and disregarding the employer makes the decision obvious. Where that is not so, the employer could share their own savings by giving a small pay rise. Each individual needs to be considered separately, as their total and mix of business/private miles will vary so much, as will the fuel-efficiency and fuel type of their cars. The position of director-shareholders should also be included in any exercise. I make no apologies for repeating this advice and may do so yet again in the future! And if you haven't read this until after 5 April 2008, don't ignore the issue for another tax year. It has been possible for a few years now, to get the benefit of a change like this straight away without waiting for the start of a fresh tax year.

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