Enter Your E-mail

Peter Arrowsmith FCA highlights a selection of NIC matters, and warns about a misconception which could affect bereavement benefit entitlement in certain circumstances.

Budget

Rates and Limits 2011/12.

It was confirmed that Labour's one percentage point increase all round with effect from 6 April 2011 is to be retained. Also retained is the previous proposal on the employee earnings threshold, i.e., - after allowing for estimated inflation, which will also affect the final figure - it will be something like £138 per week. Newly announced is that the employer's earnings threshold will rise to what (with inflation) is expected to be around £131 per week. All the limits will be confirmed in November or December along with Class 2 and Class 3 rates, etc., but regardless of the precise outcome, the thresholds already compare unfavourably with the new personal tax allowance next year of around £144 per week. The Upper Earnings Limit (Class 1) and the Upper Profits Limit (Class 4) will reduce to around £815 per week, down from the current £844 per week. A reduction of this kind is very much a first for the NIC system.

NIC Holiday

A new scheme will give relief for up to £5,000 of employer contributions in the first year of employment per employee (up to a maximum of ten employees) taken on in the first year of a new business' life. It will apply only to new businesses starting up in certain areas. The areas are currently stated only in very broad terms as follows - Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West. The scheme will have a life of three years and has an optimistic start date of 6 September 2010 and the scheme will apply to new businesses starting on or after that date. Businesses that commence on or after 22 June 2010 will also be able to obtain relief but only from the start date of the scheme - contributions due prior to that will be due in full and will not be alleviated retrospectively.

There will be some exceptions!

Notably businesses affected by the IR35 (Personal Service Company) or MSC (Managed Service Company) legislative regimes. In addition some trades will be excluded. The full list of exceptions has not yet been revealed but the coal, agriculture and fisheries sectors will certainly be amongst them. However, investment and property businesses are potentially eligible. The precise mechanism of how the NIC holiday relief will be claimed is yet to be advised.

End of Filing Date Extensions

Extra Statutory Concession ESC B46 which allows an extra seven days for filing Forms P35 and the associated P14s will cease to apply with effect from 31 March 2011. In other words, it is already no more as far as employer end-of-year filing is concerned. The apparently odd cessation date is because the ESC also applies to Corporation Tax Returns. I understand that around 32,000 employers filed in 2010 after 19 May but before 27 May. Penalties beckon next year for these people.

Marginal Items of Pay

HM Revenue and Customs has issued a note (Marginal Items of Pay - When to Work out NICs and PAYE) that amends the guidance on page 7 of the current edition of 'Employer Further Guide to PAYE' (CWG2).

In essence, the new point is that HMRC will not accept that securities are marginal items of pay. Where the payroll department gets such details late it will therefore be necessary to rework the correct NIC liabilities for the actual pay period in which the 'payment' was made.

There is also included the reminder that there can now be penalties where late payments are made in-year.

Lease Premium Settlement Initiative

HM Revenue and Customs has launched a settlement initiative for those who used the lease premium avoidance scheme which was intended to reduce Income Tax and National Insurance liabilities on employer-provided accommodation. The scheme was outlawed by Finance Act 2009 s 71. HMRC contends that even without that legislation the scheme was ineffective whether used in conjunction with an employee benefit trust or with some other vehicle - or none at all.

Some users may wish to challenge HMRC through the Tribunal and then the Courts. Others who wish to, can avail themselves of the recent offer - described as indicating 'their willingness to reach a financial settlement with HMRC'.

Where an EBT or similar vehicle was used the offer is available as regards cases where a premium is payable under a lease entered into or extended before 22 April 2009 and where the lease was entered into for a period of 24 months or less. Where direct leases were used the offer is available as regards leases of the same length entered into after 5 April 2006 and before 22 April 2009.

The terms of the envisaged settlement will include (subject to certificates of coverage, etc.) full employer and employee NIC, tax and interest thereon. Penalties will not be sought in most cases. Cases already dealt with under a contract settlement will not be re-opened.

The closing date is Friday, 6 August 2010 (at 5pm) and those wishing to make use of the Initiative should send a letter signed by the company to either Dave Feldman or Norman Morley at -

HMRC Manchester Specialist Investigations,
5th Floor, Trinity Bridge House,
2 Dearmans Place
SALFORD
M3 5AQ

Email: dave.feldman@hmrc.gsi.gov.uk / norman.morley@hmrc.gsi.gov.uk
Phones: 0161 261 2211/3519
Fax: 0161 261 3399
Mobiles: 07748 634655/07926 866567

More detailed information is available in two pdfs at Lease Premium Initiative

Cosmetic Sales Force NOT Employees

Talentcore, trading as Team Sprits (TC 454) provided staff to work for cosmetics companies at duty-free airport shops. HM Revenue and Customs alleged that there was PAYE and NIC liability under the agency provisions. The tribunal found that there was no framework contract between the company and the consultants so that the latter were free to accept or decline work and the company was free to offer or not to offer work. No training was provided though guidance was given regarding dress and conduct. Consultants who were unable to work for an agreed slot were expected to find a replacement and inform the company. Given this right of substitution and the temporary and ad hoc nature of the work, the Tribunal decision was that there was no contract of service.

Change of Mind, Sir? - No Refund

Mr Fenton had paid voluntary Class 3 contributions after his redundancy in 2002 on the strength of 'deficiency notices' from HM Revenue and Customs. In May 2006 the Government announced that the number of qualifying years needed for a full-rate state pension would be reduced to 30 and thus the payments made were supposedly redundant. F claimed repayment of the Class 3 contributions made, which HMRC refused. That action was confirmed as correct in HMRC Commissioners v Fenton [2010] All ER (D) 130. A refund is only due if there was an error or if no benefit entitlement could accrue as a result of the payment (precluded contributions).

The General Commissioners had decided that there was no error, but allowed F's appeal as HMRC could not show that any bereavement benefit entitlement had been enhanced.

On HMRC's appeal, it was held that the contributions were not refundable and the General Commissioners had been wrong to find otherwise.

More IR35

Novasoft Ltd v HMRC Commissioners (TC 456) is yet another IR35 case. The company was owned 75% by Novak Brajkovic and 25% by his wife and supplied the IT services of the former to clients mainly in the financial services sector. HMRC had issued decisions for PAYE and NIC covering the period from 6 April 2000 to 13 December 2002. Though there was no right of substitution, no equipment provided (for security reasons) and there were mutual obligations (though the latter can apply to situations of self-employment also), B had none of the rights of an employee, curtailed termination procedures and was not 'part and parcel' of Novasoft's clients' organisations. Accordingly, the Tribunal decision was in favour of the company.

Tip of the Month - July 2010

Regular readers will no doubt recall that persons reaching State Pension age on and after 6 April 2010 now need only 30 'qualifying years' for basic rate State Pension entitlement at the full rate.

I understand from my local press that unemployed people signing on at JobcentrePlus (in my area at any rate) are being told in suitable circumstances that they don't need to sign on any more for credits (after entitlement to contributory Jobseekers' Allowance has run its course) as they already have 30 qualifying years.

NOT TRUE!

The lack of further credits could well result in any bereavement benefits (which still require 90% of contributions in the deceased's working life) being impaired as a result. It is true that unless you have young children (and those with 30 qualifying years already generally won't) there is only 12 months of payment - but it is for individuals to decide whether they want to bother to sign on, rather than to be misled by civil servants.

We are not going to directly come across the persons affected during the course of our mainstream work, but clients may from time to time have spouses, children, parents, siblings affected and little snippets like this are always worth bearing in mind.

The above is taken from 'NIC Newsletter' (01/07/2010), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.