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Peter Arrowsmith FCA highlights a selection of NIC matters, and explains why a previous NIC planning strategy may no longer be a good idea for capital gains tax purposes.

P9Ds live on!

Following the consultation that commenced just before Christmas concerning payrolling of benefits in kind, HM Revenue and Customs has recently announced after discussion with Ministers that the current £8,500 limit will not be abolished.

The responses to the main thrust of the consultation are still being considered.

Homeworkers

The weekly rate that employers can pay on an unreceipted basis to reimburse costs incurred by an employee working at home, without attracting tax and Class 1 NIC liability has been increased from £2 per week to £3 per week. For payments up to and including this amount no receipts are required.

Of course payments can be made above that amount - if there is evidence to justify them (no comments about MPs' expenses, please!).

Foreign holiday homes

Although the Budget was silent, the Finance Bill does include the legislation announced in the 2007 Budget and exposed for consultation last summer.

As with the draft, the Finance Bill clause is still deficient in covering ownership of foreign holiday homes only directly through companies and subsidiaries and not through trusts.

HMRC gets it wrong

There is new functionality on the Budget 2008 version of the Employer CD-ROM so that it is now possible to calculate Student Loan deductions. Sadly, HM Revenue and Customs overlooked the fundamental point that such deductions are calculated on the NICable pay and not (where different, eg pension contributions, payroll giving) taxable pay.

The CD-ROM must therefore be used, if at all, with extreme caution.

Building trade - holiday pay schemes

The Building and Civil Engineering Holidays Scheme is keen to make the most of the remaining four and a half years' NIC exemption and has set up a savings calculator at www.bandce.co.uk/Employers/NIConcession

Late payment of Class 3 not allowed

A futile yet successful appeal to the General Commissioners was overturned at the High Court in HMRC Commissioners v Kearney (2008 All ER 25).

Mr Kearney, who appeared in person, made ten contributions after the introduction of the National Insurance scheme in July 1948 before leaving for Kenya in October that year to join the Kenyan police. At that time it was the practice of the colonial office to send employees going abroad a circular telegram giving information on National Insurance contributions whilst abroad. None was received by K. In 1971 he notified the National Insurance authorities that he was living in
Kenya, having found out that his assumption that contributions would be made on his behalf as a government servant was incorrect. He immediately made voluntary contributions for the previous six years. However, he then applied under 2001 Regs, Reg 50 to make payments in respect of the period from 1948 to 1965.

Whilst failure to pay had been due to ignorance or error, there was a failure to exercise due care and diligence as required by Reg 50(2)(b). It was also held that there was no obligation on the National Insurance authorities to chase up a former contributor where there was not any obligation to pay.

Tip of the month - May 2008

Since the introduction of Capital Gains Tax taper relief it has been good NIC planning to ensure that where land and buildings owned outside a company are used by that company in its trade full market rent is paid. Rent of course attracts no NIC liability unlike salary, nor the opprobrium that dividends attract. In fact the justification for paying rent is (apart from what follows) unassailable. The reason that this was not the case before taper relief was the restriction that applied for CGT retirement relief.

Now the position has again reversed as the same restriction once again applies in the case of the new CGT entrepreneurs' relief.

Where there is any possibility that entrepreneurs' relief will be required in the future, the payment of rent should cease. If the rent is being paid under a lease or other formal, binding agreement that lease or agreement will need to be varied (with all the consequences that may ensue) - it will not be sufficient to merely stop the payment of rent. The position is not quite so clear cut as with retirement relief. If an individual has sold one business and used all their relief then started another business the question of entrepreneurs' relief on the next disposal does not arise - unless the next chancellor increases the lifetime limit or reintroduces retirement relief! Similarly (as was the case with retirement relief also) if the disposal of the company shares alone is expected to use up all the available relief, there will be none available to use against the associated disposal of the separately owned land and buildings in any event - so rent could still be paid (subject to the usual crystal ball re future changes).

As the Finance Bill is presently drafted, the payment of rent before 6 April 2008 will also impact on the future entrepreneurs' relief that will be available. Lobbying is taking place to remove this retrospective effect. Only time will tell whether there is any success on this point.

The above is taken from 'NIC Newsletter' (01/05/2008), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.