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Where Taxpayers and Advisers Meet
NIC Update - January 2011
16/01/2011, by Peter Arrowsmith FCA, Tax Articles - PAYE and Payroll Taxes, National Insurance, NICs
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Peter Arrowsmith FCA highlights a selection of NIC matters, and provides a tip in respect of those who have worked and paid contributions in more than one EU member state.

Real Time Information (RTI)

Further to the initial consultation last year, the expected follow up has been launched.

It is currently proposed that RTI will be piloted from April 2012 with employers being moved onto the system over an 18 month period so that it is universal by October 2013.

The document can be found by following the link at Improving the Operation of Pay As You Earn

Comments, for which the closing date is 28 February, should be sent to -

HM Revenue & Customs
PAYE Consultation
Room 1/40, 100 Parliament Street
LONDON
SW1A 2BQ

Email: paye.consultation@hmrc.gsi.gov.uk
Fax: 0207 147 2531
Phone (for copies in alternative languages and formats): 0207 147 0842

'Disguised Remuneration'

As part of the publication of Finance Act 2011 clauses in December 2010, there are measures designed to counter the practice of 'disguised remuneration' - which will not become effective until 6 April 2011, but come with anti-forestalling provisions. The draft legislation will also apply to NIC as to tax and is voluminous. It is designed to catch a wide range of trusts and other intermediaries - and will encompass Employee Benefit Trusts (EBTs) and Employer-Financed Retirement Benefit Schemes (EFRBs).

The anti-forestalling provisions will treat payments (construed in this context very widely) made between 9 December 2010 and 5 April 2011 inclusive, and not subsequently repaid, as being taxable and NIC-able on 6 April 2012.

Security for Payments of PAYE/NIC

The previous government's proposals have re-emerged with the issue of a fresh consultation document and draft Finance Act 2011 and draft PAYE Regs. changes. As is the case so often, it is stated that the change will extend to NICs but no draft NIC legislation is made available.

Power to require security will be introduced from 6 April 2012 but will not extend to employers who only employ personal employees, care and support employers and those who have entered into a Time To Pay arrangement.

The document can be downloaded at Security for PAYE And NICs

The close date for comments is 9 February 2011 and these can be made to -

HMRC Review of Powers
Security, Room 1/72
100 Parliament Street
LONDON
SW1A 2BQ

Email: powers.review-of-hmrc@hmrc.gsi.gov.uk
Fax: 0207 147 2375

More DOTAS Changes

The National Insurance Contributions (Application of Part 7 of the Finance Act 2004) (Amendment) Regulations 2010 (SI 2010/2927) make further amendments to the requirements to notify avoidance schemes.

The changes are in line with the further tax changes made by Finance Act 2010 and came into effect last Saturday. The main changes are:

  • acceleration of the obligation to disclose, to the time a promoter first takes steps to market it,
  • promoters to provide periodic lists of clients which have implemented schemes,
  • HMRC are allowed to obtain information from intermediaries to identify promoters,
  • the Tribunal can impose an initial penalty of up to £1 million where it considers the aggregate initial daily penalties to be 'inappropriately' low,
  • allow HMRC to prescribe the period after which increased penalties apply.

Failure for Discounted Options Scheme

The First-tier Tribunal has found for HM Revenue and Customs in the case of Aberdeen Asset Management plc v HMRC, TC779.

The scheme in this case involved payments into an EBT which acquired 15 Isle of Man (IoM) companies and which claimed to settle nominal amounts on family trusts for the benefit of seven of the employees. The purpose of the scheme was that there would be no UK tax or NIC until the cash held in the IoM companies was brought back to the UK by way of, for example, dividend or payments on liquidation.

The basis of the company's appeal was that the employees had never become contractually entitled to payment. The Tribunal dismissed the appeal in principle and applied the principles of a Stamp Duty case - Hong Kong Collector of Stamp Revenue v Arrowtown Assets Ltd, FCA(HK) 2003, 6 ITLR 454 - wherein it was held that 'the ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transactions, viewed realistically'. The Tribunal was of the view that the cash in the IoM companies was 'unreservedly at the disposal of the employee' and that there had been 'a form of payment which the statutory provisions in question, construed purposively, were plainly designed to catch' and that the shares in the IoM companies were 'a profit which is taxable'.

Class 3 NIC Can be Paid

In a reversal of the usual outcome in this kind of case, John Redman Goldsack was successful at the First-tier Tribunal (TC784) in establishing his right to pay Class 3 (voluntary) contributions for 1955-1964. Soon after leaving school G had two periods of work abroad in quick succession. Although he paid six (different) years' arrears of Class 3 contributions in 1970, he still had a substantial gap in his record (and therefore stood to suffer a 15% reduction in basic state pension for life). It was accepted by HMRC that non payment was due to ignorance or error, but asserted that this was due to 'failure to exercise due care and diligence'. G said that his only failing had been not to ask questions that no reasonable person could anticipate should be asked. The Tribunal noted that G had registered for NIC at the age of 18 and had been given a contribution card that referred to "Special Contribution Provisions" affecting six categories of people, one of which was 'men who go abroad'. In the context of G being in the flush of youth and also for a while paying into the East African Widows and Orphan Pension Fund, and the view formed as to his honest, careful and diligent nature the Tribunal found that G had not failed to exercise due care and diligence and decided that he was entitled to pay arrears late.

Office of Tax Simplification (OTS)

The OTS published late last year a list of 1,042 tax, etc., exemptions, all of which are under its spotlight before it reports back to Ministers. Of the total 73 relate to National Insurance contributions alone and another 73 relate to tax and NICs.

However, some of the items listed are fundamental and structural such as the Lower Earnings Limit, the thresholds, the UAP, the Upper Earnings Limit, the 52 week exemption for incoming employees from non-EC and non-reciprocal agreement countries, as well as reliefs under the latter.

Of the others some appear to be listed more than once, viz holiday pay schemes in the building trade and lost credit/debit card reward payments.

A subsequent report just before Christmas highlighted a number of items on which the OTS is concentrating. These include cycle reliefs, late night taxis, lost credit card rewards, miners' free coal and - rather worryingly - the important grandfathering provisions at Social Security Contributions Regs 2001 Sch 3 para 2 in relation to benefits from pre-2006 contributions made to unapproved pension arrangements.

Maternity Benefits

You may well recall that there has been a European proposal to extend maternity and adoption pay to 20 weeks at full pay, with the existing two weeks' paternity pay at full pay also. The European Parliament adopted its first reading position on the Pregnant Workers Directive on 20 October 2010.

The UK and seven other countries (including France and Germany) last month expressed their strong concerns at a meeting of the EU Employment Council (EPSCO) in Brussels.

Subsequently, it is reported that the plan has been rejected by EU Ministers but it is quite likely that it will be reconsidered later in 2011 when Hungary takes over the EU Presidency.

Tip of the Month - January 2011

The state pension position where a person has worked and paid contributions in more than one EU member state is not widely understood.

The position is most easily explained by a simple example.

Suppose your client has been insured (i.e., paid contributions):

  • for 10 years in member state 1,
  • for 25 years in member state 2,
  • for 5 years in member state 3.

Thus they were insured for 40 years altogether.

The first member state will calculate the amount of pension they would be entitled to after 40 years of insurance in that state. It will then pay the amount corresponding to the actual periods of insurance, i.e., 10/40 of this amount.

The second state will pay 25/40 of the amount they would be entitled to in that state after 40 years of insurance.

And the last member state will pay 5/40 of the amount they would have been entitled to in that state after 40 years of insurance.

Where a person has worked in more than one member state, they should apply for their pension in their state of residence, unless in fact they have never worked there, in which case they should apply to the country where they last worked. That country (in either of the two situations mentioned) will then liaise with the other affected countries as appropriate.

Finally, it should also be borne in mind that state pension ages (SPA) vary across the EU and this will affect the making of a claim. I recommend making the claim to the state as determined in the previous paragraph ahead not of its own SPA but ahead of the earliest SPA of any country where your client has worked.

The above is taken from 'NIC Newsletter' (04/01/2011), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.

About The Author

Peter Arrowsmith, FCA is a National Insurance Consultant providing specialist NIC consultancy services to professional firms.

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