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Peter Arrowsmith FCA with an update on all matters NIC.

Changes in Advisory Fuel Rates

The car fuel advisory rates have been updated to apply to journeys undertaken on and after 1 March 2012 - see HMRC Tax-Free Advisory Fuel Rates Increase from 1 March

These latest rates are based on prices per litre of 135.2p (petrol), 142.3p (diesel) and 74.1p (LPG).
The only rates to change this time are for diesel.

Advisory fuel rates are the HMRC approved rates at which employers can reimburse their employees for business travel in company cars, or to require employees to reimburse the cost of fuel used for private travel in a company car without attracting a fuel benefit charge. For the purpose of these rates, HMRC treats petrol-hybrid cars as petrol cars. During March, employers can use either the previous or the current rates.

Low Earnings Threshold

The accrual limit for State Second Pension for 2012/13 will be £14,700 (£14,400 in 2011/12). This has been fixed by the Social Security Pensions (Low Earnings Threshold) Order 2012 (SI 2012/188).

This limit does not in any way affect employers or the recording of National Insurance contributions by them.

Flat Rate Accrual Amount Fixed

The Social Security Pensions (Flat Rate Accrual Amount) Order 2012 (SI 2012/189) sets the flat rate accrual amount for 2012/13 at £88.40. This is the amount of Annual Additional State Pension that will be earned if earnings fall between the Lower Earnings Limit and the Low Earnings Threshold (see above item). Those earning above the Low Earnings Threshold continue to earn an element of earnings-related state pension – for a few more years.

Self-Employed Teachers, Lecturers, etc.

These people are to be self-employed for NIC too from 6 April 2012, it has been confirmed. The recent  Summary of Responses: Categorisation of Earners Regulations 1978 confirms that the change will go ahead and be made by Statutory Instrument shortly.

Smartphones ARE Mobile Phones

In Revenue & Customs Brief 02/12, HMRC confirms that it has changed its view and now accepts that smartphones (but not PDAs) are mobile phones for the purpose of the exemption in the Income Tax (Earnings and Pensions) Act 2003 s 319. Many employers will not have declared such benefits in the past but those that have can apply for a Class 1A National Insurance refund. The Brief itself contains details of the process for doing that. See HMRC Accepts Defeat Over the Rise of the SmartPhone and Tax Refunds May be Due for further information. 

Homeworkers – Reimbursing Expenses Without Detailed Records

From 6 April 2012, the amount that can be reimbursed free of tax and NIC by employers for additional expenses incurred by employees whilst working at home will increase to £4 per week. It was £2 per week in 2007/08 and earlier years and £3 per week for 2008/09 to 2011/12 inclusive.

This limit does not apply to expenses incurred that the employer does not reimburse – in this case full records, etc., will be required.

Maximum Contributions

The Social Security (Contributions)(Amendment) Regulations 2012 (SI 2012/573) make amendments to the rules for the repayment of Class 1 and Class 4 contributions in excess of the relevant personalised maximum so that for 2011/12 onwards the increased contribution rates applicable from last April are used. Why the rates in the formulae in the legislation cannot be set out by cross reference to main rates and other rates – so as to save this unnecessary bureaucracy every time a rate changes – I’ve yet to fathom.

ITV Services Ltd

I reported the First-Tier Tribunal decision at the start of last March, which in the main went against ITV as regards the application of the Categorisation Regulations in respect of entertainers.

HMRC did not appeal the small part of the original decision that went against it. The Upper Tribunal has now dismissed the ITV appeal against the other parts of the FTT decision.

Specifically –

• The tests in para 5A of the Regs are to be determined at the start of a contract
• The concept of salary is generic and forward-looking, and
• The legislative concept of ‘salary’ requires consideration only of the contract itself and not the negotiations that led up to it.

With regard to the second bullet above the Upper Tribunal did consider the example where the only salary element in a contract was for overrun payments at a fixed rate, which might not be needed and the payments not made. The UT held that this was sufficient for the contract for ‘an element of salary’ and thus all actual payments under the contract would fall within the Regs.

I have no idea whether ITV is to further appeal. If you do, please let me know.

Pension Compensation Liable to Tax and NIC

In March last year I reported the dismissal of the employers' appeal to the Upper Tribunal in Kuehne + Nagel Drinks Logistics Ltd and others v CRC. The Court of Appeal has also upheld the First-Tier Tribunal decision in favour of HMRC ([2012] EWCA Civ 34).

Compensation for giving up pension rights was linked to the need to keep workers onside and steer clear of the threat of strike action. The linkage to employment and the words in ITEPA 2003 s 62(2) meant that the payments of £5,000 per worker were taxable and, similarly, liable to NIC.

Second Month This Year (and counting) – HMRC Records Unassailable

Catherina Gerda Prochazka (a Dutch lady who seemingly came here to marry and settle) was another unsuccessful individual when it came to disputing that she had made a married woman’s reduced rate election. She is left with a reduced state pension of 75% as the ‘two-year test’ of 1978 meant hat she ultimately lost the election and then became eligible for Home Responsibilities Protection. (TC1703).

No Class 3 Refund

The decision in Janet Howell (TC1771) followed that in Osborne & Others (2009) and the consequent Upper Tribunal decision in Clifford Bonner & Others [2010] UKUT 450 (TCC) that I reported in December 2009 and February 2011 respectively. Janet had paid some Class 3 contributions on 24 April 2006 and she subsequently requested repayment given the announcement on 25 May 2006 of the reduction in the number of qualifying years required for a full state pension to 30.

The Class 3 for 2003/04 and 2004/05 was refunded as in fact they did not make those years qualifying years. But on the main point of the payment for 1996/97 and 2001/02 inclusive there was no ‘error’ at the time of payment and the appeal against the HMRC decision to refuse the repayment claim was dismissed.

NIC Holiday

The number of successful applicants has now reached the heady total of 12,827 as at 16 February 2012.

Tip of the Month - Read the HMRC EMployer Helpbook E13

Encourage your employer clients to read HMRC Employer Helpbook E13 (Day-to-day payroll) despite the HMRC exhortation on the cover that it’s only for employers who do not efile P45s and P46s. That’s it this month. Or perhaps you would like me to explain myself?

Nearly half the booklet explains how to fill in Form P11 (deductions working sheet) for both tax and NIC. Even if small employers are (as the vast majority have to) efiling at the year end (and the front cover mentions only the efiling of starter/leaver information, not the year end documents) many still use manual procedures during the year for weekly and/or monthly salary calculations and deductions. These are the very people who need to read E13.

The booklet then goes on to give details about making payments to HMRC – time limits, penalties, the quarterly payment option. Why does HMRC consider this irrelevant merely because an employer is filing electronically?

Then – nearly two-thirds of the way through – we do get to P45s and the P46. Even if employers are obliged to efile these documents, new employees will still produce paper P45s and the P46 procedure will apply to those who join without a P45. This is the best source of information for employers from HMRC on this subject that I am aware of and it’s a shame HMRC is encouraging the vast majority not to read it. There is a section on changes of status for NIC purposes – age, joining or leaving pension scheme, becoming a director, giving up the reduced rate election. I can’t see why efiling in-year forms absolves the employer from needing to know this stuff.

Finally there are a number of occasions in the CWG2 (Employer Further Guide) where the reader is referred back to the E13. If they take note of the no entry sign on the front cover where do they get the advice to which CWG2 is referring them? The E13 is a useful booklet – and its rare that I say that about HMRC literature. Not only should your employer clients use it in their daily lives, you may like to take it to bed to read too!

The above is taken from 'NIC Newsletter' (01/03/2012), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.