Enter Your E-mail

Peter Arrowsmith FCA highlights a selection of NIC matters, and provides a timely reminder for employers about penalties for late payment of PAYE (including CIS) anc Class 1 NIC liabilities.

New EC Regulations

The 'new' Regulations (EC Regs 883/2004) at last come into effect.

Apart from a 'short' secondment now constituting up to 24 months rather than 12 months as of today, remember also that the old ploy that where the employer does not have a place of business where the employee is performing the work, the employer's liability drops away because it cannot be enforced, will no longer apply because of the ability to enforce social security debts across frontiers. This will involve businesses running either UK or foreign equivalent PAYE schemes just to handle NIC.

In addition, it should be noted that the UK is not applying the new rules to Third Country Nationals - for these people the 1971 Regs will continue to apply. E101s correctly held as of today will continue in force unless circumstances change or an election is made to apply the new Regs with immediate effect.

Not until 24 April were Administrative Commission Decisions made last June published. Those of direct relevance to contributions rather than benefits are -

• Decision A2 - interpretation of Reg 883/2004 Art 12 (posted workers and self-employed workers temporarily working outside the competent State
• Decision E1 - practical arrangements for the transitional period for data exchanges by electronic means
• Decision H1 - transition from 'old' Regs (1408/71 and 574/72) to 'new' Regs,

And this final one regarding benefits may also be of interest in some cases -

• Recommendation U2 - unemployed persons accompanying their spouses or partners pursuing a professional or trade activity in another Member State.

PAYE/NIC Security to Wait

The measure announced on Budget day enabling HMRC to require security in certain instances was dropped from the Finance Act 2010 in the pre-dissolution rush.

Destined to come into effect only from April 2011 there is, of course, ample time for it to be introduced in the next Finance Bill of 2010.

One-Off success for use of Personal Helicopter

Antique Buildings Ltd owned a helicopter which was provided for both the business and personal use of the director. In accordance with the known but unfair rules, HMRC contended that Class 1A NIC was due on the full annual value and running costs without allowance for business use.

The company was successful - as the amount chargeable to tax was under the benefits code, (not a reimbursed expense), tax relief was due under ITEPA 2003 s 365 (in Chapter 3) and not under Chapters 2 or 5. Until SI2007/799 (which took effect from 6 April 2006), the 'all or nothing' legislation in SSCBA 1992 s 10(7) referred only to Chapters 2 and 5, hence the tribunal judge found against HMRC. (TC408).

No Relief for Pension Compensation Payments

Following a company reconstruction, workers under a new employer found that they would no longer be members of a defined benefit (i.e., salary-related) pension scheme. There ensued the threat of strikes and concern about the future attitude of workers and whether they would work willingly and satisfactorily. To head off the strike threat compensation payments were made for the loss of pension rights and the payer and some employees contended that these were neither taxable nor liable to NICs.

In Kuehne + Nagel Drinks Logistics Ltd and others v HMRC Commissioners (TC314) it was held that the payments were taxable. They stemmed from two sources - the pure compensatory factor and the clearly employment-related issue that they were made to prevent the strikes and promote future harmony. Just because there was a non-employment reason for the payment, this did not prevent the other reason being the means by which HMRC could attach tax liability. The judge (Charles Hellier) said that if the payment had been a sum simply and solely to recognise the removal of a voluntary pension or the removal of an expectation of a pension then it would not have been treated as being 'from employment'. (This may provoke other future cases involving the reduction of pension benefits).

The judge also considered that the test to be applied for NIC purposes was identical to that in the case of the employment income tax charge.

The employer and employee appeals were accordingly dismissed.

Self-Employed - If it Suits

Brett Convery v HMRC Commissioners (TC401) is another one of those cases where a building worker who has been happily categorised as self-employed for a while then claims to be an employee where a better result might ensue.

Admittedly, C's true status was complicated in that he was engaged to do some work at the private residence of a director of a company for whom he had done much work before. Not only was the status challenged, but it was not clear whether the engager of his services was the company or the director personally.

Unfortunately, C had fallen while doing the work and, if an employee, would be eligible for Industrial Injuries Disablement Benefit.

However, he was held to be self-employed and the appeal was dismissed.

Favourable Result in the End for Very Late Voluntary National Insurance Contributions

In the case of HMRC Commissioners v Kearney ([2010] EWCA Civ 288), the Court of Appeal reinstated what was perhaps a surprising General Commissioners decision that someone who moved to Kenya in 1948 could pay voluntary contributions at the time of retirement as failure to pay had not been due to a lack of care and due diligence.

Overturning the High Court decision for HMRC, the Court said that diligent enquiries might not necessarily be made of the authorities but of, for instance, the employer or of a trade union. In addition the Court noted that at the time that the contributions should have been paid - and unlike now - K would not have had access to the Internet or mobile phones. It was only right to look at the circumstances as they existed at the time, not as they are now.

Ban the NIC Increase!

Some of you may be interested in the website Say No to National Insurance Contributions (NICs) Increase - the contents of which are self-explanatory.

Tip of the Month - May 2010

Another warning for employers this month!

New penalties are now in force where monthly/quarterly PAYE (and that includes CIS) and Class 1 National Insurance contributions remittances are made late. These will (for some years yet) only be issued manually and so are most likely to be picked up either where a payment is simply one or more days late, or else at an employer compliance review.

Where applied, employers of all sizes are affected. The amount of the penalty will depend on the number of defaults in any 12-month period.
 
There will be no penalty for the first default. Other defaults will attract a penalty starting at 1% and rising to 5% of the tax/NIC unpaid.

There will be further penalties of 5% of any amounts still unpaid at six and twelve months after the end of the year, but these later penalties will not be charged during an agreed Time To Pay arrangement (unless the taxpayer defaults or misuses the arrangement). This penalty regime replaces the previous one which applied only to large employers required to pay on time and by electronic means. Such large employers are still required to pay electronically, but are no longer sent a notice the previous autumn.

These penalties will therefore first apply to monthly remittances due on 19 May 2010 (21 May if paid electronically) and quarterly remittances due 19/22 July 2010.

The six and twelve month penalties will also apply to late-paid Class 1A and Class 1B contributions, but (as with Class 1) only for 2010/11 liabilities onwards. They will not therefore apply to the payments due in July and October (respectively) this year (since these payments relate to the 2009/10 tax year).

The above is taken from 'NIC Newsletter' (30/04/2010), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.