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Peter Arrowsmith FCA highlights a seclection of NIC matters, and provides a tip for the payment of bonuses to directors or employees in view of future increases in the Upper Earnings Limit.

New National Insurance Number (NINO) Regulations

The Social Security (National Insurance Numbers) Amendment Regulations 2008 (SI 2008/223) make amendments to the information required for adult registration as a result of the Immigration (Restrictions on Employment) Order 2007 (SI 2007/3290). Both took effect on 29 February.

The documentation required to support a successful NINO registration application remains in line with the evidence required by employers proving that the individual has the right to work in the UK. There is no change to the current rules which provide for the allocation of NINOs to benefit or tax credit claimants.

National Insurance Manual

NIM02200 concerns holiday pay and has been updated to reflect the announcement at Pre Budget Report 2007. However, in so doing it now refers to ongoing relief still being available to 'companies who operate within construction operations ….' Whilst it is no doubt true that most businesses still eligible for this relief will be companies, there will no doubt also be a good number of partnerships, LLPs or even sole traders. The relief is most certainly not restricted only to companies and eligible employers who are not companies may receive unnecessary challenges in the future as compliance teams may very well interpret the guidance at face value. When in doubt, always refer back to the legislation!

DWP Agencies

After short lives, The Pension Service and the Disability and Carers Service - both agencies of the Department for Work and Pensions - are to be merged into a single Pension, Disability and Carers' Service with effect from 1 April 2008.

Tip of the Month - March 2008

From 6 April 2008 the Upper Earnings Limit will increase significantly from £670 per week to £770 per week.

Whether for modestly paid directors (without dividends) or ordinary employees either of whom receives bonuses there may be opportunities to avoid or reduce the impact of next month's increase.

For example, let us take a director who will have earnings - basic pay and a £5,000 bonus - in the current tax year of £35,000. If next year's bonus of £5,000 is expected to be paid in April or May (or even later) it would be worthwhile considering the payment of this on or before 5 April 2008. If paid in the current year the employee's National Insurance will be due at only 1%, but if paid next year would be due at 11%. Of course the PAYE, as well as the reduced amount of NIC, is being paid a few months earlier than would otherwise be the case. The mistimed payment rules for NIC mean that - as salary, etc - the early payment cannot be treated as made at any time other than the tax year in question (2007/08). The only risk is that HMRC might argue that the payment is an advance of the net sum and the point of payment of actual salary was still in the following year. To counter that argument, any discretionary bonus should be properly and contemporaneously minuted and in the case of a contractual bonus with a fixed payment date (in the next tax year) the contract of employment should be formally varied by agreement between the parties.

In theory, it would be possible to pay next year's basic salary in advance this tax year to achieve a similar effect - but beware. The employer will lose cashflow to the extent of the gross salary plus employers' NIC and may not be prepared to do so.

Similar planning possibilities will be available again next year when the Upper Earnings Limit will once again increase substantially. I appreciate that many directors these days may take substantial dividends (or even substantial salary), which makes it all the more important not to overlook that small number of cases where a very simply achieved saving can be had.

The above is taken from 'NIC Newsletter' (03/03/2008), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.