Peter Arrowsmith FCA highlights a selection of National Insurance matters, and provides a timely tip regarding NIC repayment claims.
National Insurance Contributions Bill
The Bill was reported in the Commons on 13 January 2011 (not having been amended at all in Committee) and had its third reading. On the same day it had its first reading in the Lords.
During the December Committee Stages HMRC revealed that there had then been just over 1,100 applications to date - of which 54 had been rejected. By 13 January there had been a further 400 applications. The response, at either stage, is rather askew from the 400,000 applications expected over the three year period.
Pensions Bill
The Pensions Bill 2011 was introduced into the House of Lords on 12 January.
It accelerates the State Pension Age for both men and women to 66 by 2020 in line with the government's announcement last autumn.
The Bill also brings in further provisions relating to auto-enrolment in workplace pension schemes and permits occupational schemes to increase pensions in line with the Consumer Price Index (CPI) rather the Retail Prices Index (RPI).
Compensation Reduced for Small Employers
Statutory Payment rates were announced in December and can be seen on my website at UK National Insurance Rates and Limits 2011/2012
It has subsequently been announced that the compensation rate for Statutory Maternity Pay, Statutory Paternity Pay (Ordinary and Additional) and Statutory Adoption Pay for small employers who qualify will be reduced from 4.5% to 3% from 6 April 2011. The qualifying amount (£45,000 or less of National Insurance contributions due for the preceding tax year) remains unchanged, as does the fallback rate of 92% for all other employers.
Nothing is said about the Statutory Sick Pay compensation rate, so I assume that remains unchanged.
Modified NIC Aarrangements
Modified NIC arrangements can be used in some cases where workers come into or leave the UK to mitigate the practical difficulties in dealing with irregular payments, especially where payments are being made in a number of countries and/or in another currency. More details are in the PAYE Operations Manual at
HM Revenue and Customs has identified some common errors made by users and these can be seen at Employers Who Use Modified NICs Arrangements Under EP Appendix 7A or 7B
Workers are Not Self-Employed
The case of Red Apple Cleaning Management Ltd v HMRC (TC 860) concerned whether, for tax and NIC purposes, persons engaged in cleaning commercial premises were employed or, as was contended by the company, self-employed. Given the regularity of work at the same customers'premises, of payment and lack of control by the workers themselves the First-tier Tribunal perhaps not surprisingly came to the conclusion that they were employees. The fact that there were no paid holidays or sickness was not conclusive of self-employment and the intention of the parties only of relevance in borderline cases. The intentions of the company and the workers on this point were diametrically opposed in any event.
As the workers were employees on basic principles that was the end of the matter, but had they been held to be self-employed on basic principles then the possible application of the Categorisation of Earners Regs would have had to be considered.
NIRS Quite in Order
Hywel Davies v HMRC, TC 890, was another case where (with minor exceptions) the National Insurance Contributions and Employer Office computer records were found to be unassailable.
D had been self-employed, then a director of his own company which took over that business, then (after it failed) as an employee of his wife.
Initially he was told that he had only 75% of basic pension entitlement, but on pointing out further payments of Class 1 for which receipts/other correspondence was held this was increased to 87%. He questioned the alleged non-payment of Class 2 whilst self-employed which HMRC put down to him having cancelled the direct debit. He also questioned years where Class 1 contributions were missing claiming that these were paid in employment. The fact that HMRC had not reflected £5,697.04 of Class 1 contributions on his records for which there was evidence should be taken, by implication, to support his view that other Class 1 contributions had been paid which were also not recorded.
The First-tier Tribunal found that there was no evidence that any further contributions had been paid and were missing from his computer record.
Tip of the Month
If you are planning to make NIC refund claims before the new tax year begins, do make sure that you include the correct number of years in your claim.
Some people, I know, are preparing claims in respect of mileage allowances based on the outcome of the First-tier Tribunal case Total People Ltd. I'm not dealing with that case specifically in this month's tip (but see HMRC's latest, and possibly misleading, issuance at Relevant Motoring Expenditure - Total People Limited) and there could be any number of reasons why an employer would have overpaid National Insurance contributions in earlier years.
My point this month is simply that it is still six years you can claim, i.e., currently 2004/05 to 2009/10 inclusive, as the reduction to four years in some circumstances for various taxes that came into effect last April (including for PAYE) does not apply to NIC. The matter was under review before the Election but it is not known what the current Government's position is on the matter.
Incidentally, not even the six year time limit applies to an individual who has overpaid due to a multiplicity of sources of employment and/or self-employment. There is no time limit at all in that situation.
The above is taken from 'NIC Newsletter' (01/02/2011), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.
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