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Peter Arrowsmith FCA highlights a selection of NIC matters, and offers a tip concerning students in employment during their vacations.

Childcare Relief Restrictions

You may well recall a series of press reports last autumn about future restrictions on tax relief for childcare so that relief is targeted towards basic rate taxpayers. The proposals were watered down to the position as stated after an outcry about the original announcement. HM Revenue and Customs has now published further details, though whether these will come to pass if there is a change of government remains, of course, to be seen.

The restriction would apply from 6 April 2011 to both childcare vouchers and to directly contracted (i.e., by the employer) childcare. The employer will have to assess basic pay at the start of each tax year (or at the start of a new job).

Basic rate taxpayers will continue to receive relief on a maximum of £55 per week as now, 40% taxpayers a maximum of £28 per week and 50% taxpayers £22 per week. Those limits determined at the start of the tax year will apply throughout the tax year even if pay subsequently increases or decreases. And those figures (£55, £28 or £22) will be the ones also used in applying the NIC exemptions.

Skewed Share Proceeds

Mr Gibson - a director of Gray's Timber Products Ltd - had subscribed for 5% of the shares of the company's parent. However, under the terms of the subscription agreement he was entitled to 25% of any proceeds on the sale of the Group.

In November 2003 the business was sold to a publicly quoted company and Gibson was paid in accordance the terms of the share issue to him. HM Revenue and Customs contended that as the proceeds received by Mr Gibson exceeded the market value of his 5% shareholding, the excess was chargeable to PAYE and National Insurance contributions (ITEPA 2003 s 446X and s 446Y).

The Supreme Court held in Gray's Timber Products Ltd v Revenue and Customs Commissioners ([2010] UKSC 4) that the hypothetical market value would not take into account the enhanced rights in the subscription agreement and the payment was indeed taxable and NIC-able as HMRC contended.

Notional Payments

In the High Court in the case of Chilcott ([2009] EWCH 3278 (Ch)), C and G challenged the effectiveness of the tax legislation (and there are related NIC implications) regarding the recovery of PAYE where a share option is exercised. The individuals had no other income within the requisite period from which tax could be deducted and no reimbursement was made within (then) 30 days (ICTA 1988 s 144A & s 203J). It was held that the latter provisions were entirely clear and the appeal was dismissed.

Sick Certificates

There will be few, if any, people reading this for whom the medical statement (or 'sick note') has not existed in its present guise all our lives. New regulations - the Social Security (Medical Evidence) and Statutory Sick Pay (Medical Evidence) (Amendment) Regulations 2010 (SI 2010/137) - seek to introduce a cultural shift in the way in which sickness absences are dealt with.

From 6 April 2010 the current Med 3 (and two other variants) will become a single document, the 'Statement of Fitness for Work'. The new statement contains a new option to the GP completing the form which focuses on what work the employee can do, rather than what they cannot. The GP's options (with space for comment) are to specify that "if available, and with your employer's agreement" the employee may benefit from -

• a phased return to work,
•  altered hours,
• amended duties, or
• workplace adaptations.

Employers should presumably reject for Statutory Sick Pay purposes any old Med 3s signed on and after 6 April.

Additional Statutory Paternity Pay

Five new Regulations have come into force, or in some cases come into force on 6 April 2010, to give effect to the possible transfer of some Statutory Maternity Pay (where the mother returns to work six months after the birth) to the father by way of Additional Statutory Paternity Pay. Such transfers will be possible for babies due or adoption placements made on and after 3 April 2011 (not 2010).

Rates of reimbursement to employers will follow the current pattern for Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay and the equivalent obligations as to record-keeping, funding applications, etc., will also apply.

For the record, the regulations are the:

• Ordinary Statutory Paternity Pay (Adoption), Additional Statutory Paternity Pay (Adoption) and Statutory Adoption Pay (Adoptions from Overseas) (Persons Abroad and Mariners) Regulations 2010 (SI 2010/150),
• Statutory Paternity Pay and Statutory Adoption Pay (Persons Abroad and Mariners) Regulations 2002 (Amendment) Regulations 2010 (SI 2010/151), - Additional Statutory Paternity Pay (National Health Service Employees) Regulations 2010 (SI 2010/152),
• Social Security Contributions and Benefits Act 1992 (Application of Parts 12ZA and 12ZB to Adoptions from Overseas) Regulations 2003 (Amendment) Regulations 2010 (SI 2010/153), and
• Additional Statutory Paternity Pay (Birth, Adoption and Adoptions from Overseas) (Administration) Regulations 2010 (SI 2010/154).

Class 2 Payments made Quarterly

Quarterly bills for 2010/11 will cover the following periods -
11 April 2010 - 10 July 2010
11 July 2010 - 9 October 2010
10 October 2010 - 8 January 2011
9 January 2011 - 9 April 2011

I'll provide the dates for direct debit payments on another occasion.

Tip of the Month - March 2010

This year Easter Sunday is on 4 April and there will be students doing vacation work before and after what is the holiday to the rest of us. They will be expecting employers to operate the voluntary P38(S) procedure and a key point to note is that a P38(S) operates only for one tax year. So students working both up to 5 April and also from 6 April onwards will need to sign two P38(S) forms, one for 2009/10 and one for 2010/11, for what is to both the student and the employer a single period of employment.

Now for the National Insurance bit - despite the out-of-the-ordinary tax treatment, there are NO special NIC rules for students. So where earnings exceed the Lower Earnings Limit for the relevant earnings period a P11 or equivalent computer record will be needed as normal and where the earnings also exceed the Earnings Threshold, contributions will be due as normal from both employer and employee at the appropriate rates. I cannot imagine that the appropriate rates will be anything other than Table A (11% employee; 12.8% employer).

Incidentally, and back to the tax side, there was a plan to replace the P38(S) from 6 April 2011 with a special (but actual) tax code issued to each student individually by HM Revenue and Customs. However, at present it is not clear that this plan will proceed (nor, in fact, that the P38(S) will continue if not) - I'm sure all will become clear later this year. But whether the P38(S) lives on or not and whatever new procedures there might be, it will remain the case that there are no special NIC rules for students now nor will there be in the future.

The above is taken from 'NIC Newsletter' (01/03/2010), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.