Enter Your E-mail

Peter Arrowsmith FCA highlights a selection of NIC matters, and provides a useful practical point on NIC 'Directives'.

£600 tax change

Not until 9 June was there any official confirmation that - as I had expected - there would be no changes to NIC thresholds for the current year. Indeed, there is not even any commitment to restore the meaningless 'harmonisation' of the Earnings Threshold with the tax personal allowance next April. This is rather ironic given the continuing passage of the National Insurance Contributions Bill, seeking (as it does) to harmonise the Upper Earnings Limit with the starting point for 40% income tax.

IR35 fight continues

The Dragonfly case which I reported in the Spring has been appealed to the High Court and the judgment is expected at any time.

Tips, troncs and the National Minimum Wage

Following my reports around the New Year, HM Revenue and Customs was successful recently in its appeal at the High Court (Annabels (Berkeley Square Ltd), 13 June 2008). The Employment Appeal Tribunal had held that sums held by a troncmaster belonged to the employees. But as things currently stand following the High Court decision such sums when distributed cannot form part of employer's National Minimum Wage obligation. However, I understand that Annabels was to further appeal. Further, many affected businesses now pay tips into the business bank account and then tell the troncmaster how much is available for distribution; the employer then pays the amounts determined by the troncmaster alongside the wages. Whether HMRC considers that this satisfies the rules for NIC exemption is currently unknown.

More flexible Home Responsibilities Protection (HRP)

The Social Security Pensions (Home Responsibilities) Amendment Regulations 2008 (SI 2008/498) provide that HRP can be given to a claimant where their partner was paid Child Benefit for a whole tax year and during that year they were residing together, sharing care for a child under 16 and where the Child Benefit claimant does not themselves benefit from the HRP available due to having paid actual National Insurance contributions. This will only apply where the claimant reaches state pension age on or after 6 April 2008 (or in the case of bereavement benefit, the death is on or after 6 April 2008). In these circumstances, this is more flexible than an earlier option to transfer which came into effect for 2004/05 onwards. This new provision is of course of limited application as HRP is to be replaced from April 2010 in any event.

Tip of the Month - July 2008

Most practitioners are by now fully aware of "directives" for NIC purposes, whereby an ordinary employee who receives some of their pay other than at their regular (usually monthly or weekly) pay interval, eg bonuses or commission, can have an annual earnings period (like a director) imposed upon them. Whilst an annual pay period applies automatically to directors these days, other employees have to be picked off on a case by case basis by HM Revenue and Customs and notice be given in writing to both the employer and the employee.

It is important to appreciate that the directive applies only to the named employer and the named employee. So if the employee leaves, the replacement employee has a normal earnings period until a fresh directive is issued. Similarly, if the employer changes (eg, on a sale of the business to another employer, or under a reconstruction) again the directive will no longer apply as the named employer will no longer be engaging that particular employee.

Until HMRC catch up with affairs whatever benefits can be obtained through the payment pattern in use can be enjoyed afresh.