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Peter Arrowsmith FCA highlights a selection of NIC matters, and provides a tip on the new 'NIC Holiday Relief'.

NIC Holiday Scheme

Further information on the Regional Employer National Insurance contributions Holiday for New Businesses (and this is the first and last time that I shall give it its proper name) is now available at Regional Employer NICs Holiday for New Businesses and Employer NICs Holiday - An Aspect of PAYE

Those wishing to apply (applications must be made and accepted by HM Revenue and Customs before any reduction can be taken against monthly/quarterly remittances) and who have not/are not claiming other European State Aid must do so online at Employer NICs Holiday - How to Apply (go to the link at the bottom of the page). Other applicants will need to do so only on paper.

Pool Car or no Pool Car?

In Yum Yum Ltd v HMRC Commissioners (TC616), the company alleged that the only company vehicle, kept overnight at the controlling director's house, was a 'pool car' on the grounds that company records were kept at the house and thus this was property occupied by the company.

That contention was, perhaps not surprisingly, dismissed. The car was used for private purposes and even if it were not it was so insured and thus 'available' for private use. There was also no evidence of other drivers (who were not in any event insured) or of being kept overnight at the homes of any other such users.

The judge sympathised that the scale charge was completely disproportionate to the benefit actually generated by the provision of the car but agreed with the HMRC statement this was simply as specified by the legislators. Accordingly, the appeal was dismissed.

The unfairness complained of was exacerbated by the fact that the car in question was a 1997 Jaguar XJ Sport with a list price of £38,879 when new, a purchase price of £14,000 and present value of £250. This highlights the general point that it is always worth while checking whether any car should be company-owned or purchased personally - and that the decision be reviewed from time to time. The point is accentuated where the car is older, with a high list price and has depreciated considerably. The issue will also be further amplified from April 2011 with the removal of the £80,000 cap on the list price.

Restricted Share Plan

In HMRC Commissioners v PA Holdings Ltd ([2010] All ER(D) 207), the court upheld the findings of an earlier Tax Tribunal judgement. The employer had made substantial contributions into an Employee Benefit Trust up to 1999 and from that time introduced a restricted share plan whereby bonuses were paid as dividends from a separate UK resident company. The Tribunal found that dividends on the shares awarded were liable to tax as both employment income and as dividend income. The tie-break in the tax legislation favours the latter so no tax was due on them as employment income. The Tribunal found that in the same way that the dividends in those circumstances were employment income for tax they were also 'earnings' for Class 1 National Insurance contributions. HMRC appealed the tax finding and the employer appealed the NIC finding. Both appeals were dismissed and the original Tribunal decision stands.

"Rigged" Earnings Periods

Following failed attempts to reinstate weekly, rather than fortnightly, earnings periods Mr Mason (the by-now famous oil rig worker) was similarly unsuccessful before the Upper Tribunal (Mason v HMRC Commissioners [2010] UKUT 214 (TCC)).

In fact, the Upper Tribunal said that if anything the evidence presented proved rather than disproved that a fortnight was the correct earnings period.

The effect was to much reduce employee (but not employer) contributions paid with a consequential detrimental effect on State Second Pension.

No Extra Backdated Contributions Allowed

In Sonja Moss v HMRC Commissioners TC583, Mrs Moss challenged the fact that HM Revenue and Customs would not allow payment of backdated Class 3 contributions for a period when she held a valid Married Woman's Reduced Rate Certificate. The Tribunal agreed with an earlier HMRC letter which stated that there was no law allowing her to correct the effects of a decision that she freely made to pay smaller contributions in exchange for smaller state benefits. The fact that arrears can now be paid by some people was raised as was the fact that Mrs Moss reached pension age too long ago to qualify for that. This was held not to be incompatible with European Community and Convention rights (as was also the original availability of choice) and the appeal was dismissed, it also being held that there had to be a back-stop on the new six years' arrears option and that six years was not unreasonable.

Reduced Election Was Indeed Made

Linda McLaggan was born in 1951 and had made one or more Married Woman's Reduced Rate Elections in 1974, but was divorced in March 1975, and remarried in November 1975. The original election(s) ceased to be valid upon divorce but M denied making a fresh election after her remarriage.

She disputed, therefore, the gap in her contribution record from 1975 to 1988.

Two employments subsequent to 1975 were considered in McLaggan v HMRC Commissioners (TC588). The first was assumed to be merely an error which the employer could not correct as M had moved abroad and could not be contacted. As regards the second, HMRC contended - and on balance the tribunal accepted - that the employer could only have had authority to deduct reduced rate contributions if HMRC had issued a Reduced Rate Election Certificate - and that they could only have done this if a new election had been made after remarriage. M's statement that she could not remember having made an election could not displace that conclusion and there was nothing else in the NIRS records to suggest otherwise either.

Tip of the Month - September 2010

New businesses operating through a limited company and wishing to claim the new NIC Holiday Relief should beware appointing too many family members as directors unless they are going to be working full time in the new business and be fully remunerated.

Since all directors count as employees towards the first ten that qualify for the Relief (even those - as well as non-directors - paid below the Earnings Threshold) any new business expecting to take on close to ten arm's-length employees in their first year of trading will maximise the Holiday relief by not appointing directors unnecessarily, purely for sentimental reasons or because of family pressures. By all means do so later - after the first year's trading is complete - and avoid making token payments in the meantime too.

The above is taken from 'NIC Newsletter' (06/09/2010), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.