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Peter Arrowsmith FCA outlines a selection of NIC matters, and offers a tip regarding business mileage for the use of an employee's own vehicle.

Late Payment Penalties

In the 2009 Budget it was announced that penalties would in future be charged in respect of late paid monthly remittances of PAYE/NIC. The tax provisions are in Finance Act 2009 Sch 56 and there is as yet no specific NIC legislation (nor is NIC covered in the Finance Act provisions). There will be a Statutory Instrument mirroring the tax provisions for NIC in due course.

The amount of the penalty will depend on the number of defaults in any 12 month period and has changed slightly since the Budget. There will still be no penalty for the first default. Other defaults will attract a penalty of 1% of the tax, etc., unpaid (two to four late payments in the tax year), 2% for five to seven late payments, 3% for eight to ten late payments and 4% for more than ten late payments. There will be further penalties of 5% of any amounts still unpaid as at six and twelve months after the due date in relation to PAYE and Class 1 NIC.

The two lots of 5% surcharge will also apply to Class 1A and Class 1B payments, the first being charged 30 days after the due date and the second twelve months after the due date. As with the penalties for PAYE and Class 1 NIC, these charges will apply in respect of liabilities of 2010/11 onwards that are paid late.

It had been intended at the time of last year's Budget that interest would also be applied to late in-year payments from April 2010, but this has now been deferred until at least 6 April 2012.

National Insurance Fund Accounts

The accounts for the year ended 31 March 2009 were published very early, just before Christmas in fact. (Getting the decks cleared for a General Election, I imagine).

It is worth noting that the contents reveal that the National Audit Office is currently conducting a value for money study on the efficiency of how National Insurance contributions are collected and recorded. The report is due to be published 'in 2010'.

More on EBTs

Over three years to April 2000, share options in Green were granted by the Blue employee benefit trust to employees of the Blue group. Some of those employees had been seconded from Blue to Yellow. HM Revenue and Customs issued proceedings against Blue in December 2003 - these were adjourned.

In March 2009, HMRC issued decisions against Yellow in respect of the same transactions as were covered in Blue (TC109). The company appealed, but HMRC applied to have the Blue and Yellow appeals heard together. In Yellow v HMRC (TC207), the Tribunal agreed that this should happen.

Tip of the Month - January 2010

We are all aware that where an employee uses a personally owned car for a business journey a payment of up to 40p per mile can be made tax and NIC-free for the first 10,000 business miles per year. Even if actual expenditure can be proven to be at a higher rate, the excess is still liable to tax and Class 1 NIC if that higher, but commercial, rate is actually reimbursed by the employer.

Where more than 10,000 business miles are undertaken in a tax year the tax-free amount is limited to 25p per mile (again if a higher rate can be justified and is paid there is a liability).

But what is commonly overlooked is that for NIC purposes the 40p rate applies to ALL miles (whether amongst the first 10,000 or not).

Since any excess is taxable, but goes on the P11D rather being PAYE'd, there is no requirement to payroll payments up to and including 40p per mile just to catch the NIC liability - since there is none.

Amounts paid above 40p per mile attract Class 1 on the excess over that figure (which will therefore need to be payrolled) and the excess (over 40p/25p as applicable) goes on the P11D to be taxed separately.

The above is taken from 'NIC Newsletter' (04/01/2010), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.