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Peter Arrowsmith FCA highlights a selection of NIC matters, and provides tips on filing Employer End of Year Returns for 2010/11 (P35 and P14), and on securing a contributory record for state benefits purposes.

Tip of the Year (Bonus Tip!)

Employer End of Year Returns for 2010/11 (P35, along with all P14s) need to be filed - electronically in virtually all cases - on or before 19 May 2011. The previous seven-day concession in ESC B46 no longer applies, even to those few cases that are entitled to file paper returns.

I've seen reports that if you pay electronically you have until 22 May (a Sunday this year) to pay and e-file. This is not true. The P35 MUST be filed by 19 May without exception. True is the fact that you have until 22 May to pay the 6 April 2011-5 May 2011 remittance IF you pay electronically (whether voluntarily or compulsorily), but that means receipt by HM Revenue and Customs so the payment will need to leave your account by (at the very latest, some banks may differ) 18 May to arrive on the last banking day BEFORE 22nd (which is itself a Sunday this year).

Merger of Tax and NIC?

Since the Budget the Government has confirmed that there will be no TOTAL merger of Income Tax and National Insurance contributions (as may have been inferred from the weasel words used on Budget day). The consultation document is expected in the Autumn.

NIC Holiday

In case not already dealt with, note that the usual P14(s) and P35 must be filed online, together with the postal E92 and supporting E89(s).

There is a short guide available at Regional Employer National Insurance Contributions Holiday - What Happens at the End of the Tax Year?

If you or your client has the forms E92 and E89 but have lost the envelope note that the postal address (for only the E92 and E89, not the online P35/P14) is

National Insurance Contributions and Employer Office
PAYE Employer Team (NIC Holiday)
Room BP4009
Chillingham House
Benton Park View
Longbenton
NE98 1ZZ.

Also, it should be noted that agents who have lodged valid 64-8s can now apply for the Holiday on behalf of their eligible clients - this has not been possible previously.

HM Revenue and Customs eventually issued the applicant numbers that had been promised 'around the time of the Budget'. There were, up to 28 March 2011, 3,002 applications - of which 2,892 (96.3%) were successful (yet 400,000 were/are expected by September 2013!!).

Holiday Homes

Staying with the holiday theme, HM Revenue and Customs has now issued a note concerning the repayment of Class 1A paid on the provision of holiday homes through limited companies (not trusts) for years prior to 2008/09 - see the legislation I mentioned last month.

Although it will identify cases where Income Tax was repaid, HMRC says that there is nothing to prevent an employer initiating contact (and this needs to be on or before 6 April 2015).

In that case, the claimant should set out the following:

• name, address, NINO and/or Unique Taxpayer's Reference,
• if agent acting, the agent's name and address,
• details of the living accommodation outside the UK - address, type of property, uses made of the property,
• details of the company through which living accommodation outside the UK was provided including name, address, nature of company/entity, place of incorporation, ownership and activities,
• an explanation of why the exemption is considered to apply,
• the years for which Class 1A National Insurance contributions have been paid on the 'benefit' of this accommodation
• evidence that the benefit of the accommodation in question has been taxed - acceptable evidence would include for each year copies of one or more of the following documents which clearly show the benefit as taken into account as taxable income, viz - assessments/self-assessments, P11Ds and P11D(b), correspondence with HMRC or the former Inland Revenue.

EBT Settlement Opportunity

HM Revenue and Customs has announced a kind of settlement opportunity in respect of Employee Benefit Trusts in the light of the new 'Disguised Remuneration' legislation with effect from 6 April 2011 (and the transitional rules taking us to April 2012).

The precise terms of settlement will vary from case to case but will in essence require the payment of PAYE, Class 1 NIC and interest thereon as if the April 2011 rules had always been in place, with Corporation Tax relief and credit available in respect of benefits in kind under the new regime.

There is no deadline, but employers that have not responded by 31 December 2011 will be assumed to be 'not interested in engaging' with HMRC. Where a settlement is not made then HMRC will continue to progress cases within the existing Litigation and Settlement Strategy.

Further details can be found at Employee Benefit Trusts, Settlement Opportunity

Tax Leakage

HM Revenue and Customs has set up the Plumbers' Tax Safe Plan (PTSP) enabling plumbers to declare undeclared income if they notify an intention to disclose by 31 May and pay the related Income Tax, Class 4 NIC, interest and much reduced penalties by 31 August 2011.

Further details can be found at Introduction to The Plumbers' Tax Safe Plan (PTSP) together with a link to a pdf guide.

Non-plumbers are also being encouraged to use the scheme, even though it was designed for plumbers.

Film and TV Guidance Notes

HM Revenue and Customs has issued an updated, April 2011, version of its 'Film, Television and Production Industry Guidance Notes' which can be downloaded at Film, Television and Production Industry Guidance Notes

Class 3 Extension

In George William McDonald Allan v HMRC (TC 991), A had retired and, like John Goldsack (see my NIC Update - January 2011), had spent some time abroad soon after leaving school. He had not made voluntary contributions at the time he could have and now sought to pay beyond the normal six year time limit. HM Revenue and Customs contended that A had not exercised due care and diligence so that the potential extension was not available.

In the case of A some of the time abroad was with HM Overseas Colonial Service serving in the Kenya Police Force during the Mau Mau uprising - he said 'it was a bloody and barbarous campaign … suffice to say the last thing on my mind was the UK National Insurance Scheme'.

Taking on board the Goldsack finding as well as that in Kearney, the Tribunal held in the circumstances of this case that the arrears that A wished to pay could indeed be paid.

Tip of the Month - May 2011

Every now and again I get a flurry of queries about a very basic point. The turn of the latest tax year was another of these occasions. What is the minimum amount of salary  to pay to get a contributory record for state benefits?

The separation this year of the Employer and Employee Earnings Thresholds seems to have caused some people to wonder which of the two is applicable. The answer is neither!

It is - and always has been - the Lower Earnings Limit - i.e., now £102 per week or £442 per month. No actual National Insurance contributions are due at this level but you are required to complete a P11 (or computer equivalent) and so then at the end of the year to send in a P14 with a covering P35. For the avoidance of doubt when I say 'required' I mean it is a legal obligation - some people think you only need bother if you are actively seeking the contributory record. This is most certainly not the case.

Also at any level of earnings from £5,304 (52 x £102) to £14,400 the employee is deemed to have for State Second Pension purposes only earnings of £14,400. Very useful!

And if you are coming to a situation of this kind after the start of the tax year, be careful! It may not be sufficient - except in the case of a director in post at the start of the tax year - to pay a bonus at the
end of the year to top up any shortfall. If you are starting at, say, the end of September just double up to £204 per week then drop back at the start of next tax year to whatever next year's equivalent of £102/£442 is by then. But if you are starting very late in the year note that more than £770 per week (Upper Accrual Point) does not count in the calculation. You'll therefore need £758 or more for each of the final seven weeks in that case.

The above is taken from 'NIC Newsletter' (03/05/2011), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.