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Peter Arrowsmith FCA highlights a selection of NIC matters, and provides a helpful tip for certain self-employed individuals.

Pensions Bill

For the record, the Bill is now being considered line by line by the Commons' Public Bill Committee. This is the Bill that amongst many other things is going to accelerate the date from which we all retire.

More Electronics from HM Revenue and Customs

A consultation document issued on 8 August notes that from April 2012 there will be a Registration Wizard for new businesses registering for Corporation Tax, Income Tax Self-Assessment, PAYE schemes and Class 2 National Insurance contributions.

The 'Digital by Default' document then goes on to say that - as the title suggests - registering electronically should be the norm. The question is whether it is compulsory or merely actively encouraged.

The consultation closes on 31 October.

A similar document looks at VAT digital business.

To download the documents go to the 8 August entries at HM Revenue & Customs' What's New

Spotlight Number 12

HM Revenue and Customs has issued a new Spotlight concerning a scheme (or rather, range of schemes) brought to its attention which purport to get round the new 'disguised remuneration' provisions. Needless to say, it does not consider that they are effective.

See Spotlights

And the long-awaited draft NIC regulations that will apply the disguised remuneration rules to NIC have now been published.

See - Disguised Remuneration - Draft National Insurance Contributions Regulations

The close date for comments is 23 September.

Help for Businesses Affected by Riots

HM Revenue and Customs has set up a special helpline for businesses affected by the recent riots and looting in various parts of the country. The help extends across all duties including National Insurance contributions (and Tax Credits claims). Businesses are welcome to get in touch if, for example, they have difficulty meeting payment or submission deadlines or they have lost records due to fire or theft.

The number is 08453 661207. This is the one previously used for foot and mouth and floods and like previous occasions, the line is available seven days a week.

Total People: Decision Reversed

By now Total People has in fact become Cheshire Employer and Skills Development Ltd and its First-tier Tribunal decision was overturned at the Upper Tribunal (FTC/89/2010) following HM Revenue and Customs'
appeal.

The case concerned the statutory mileage allowance of 45p per mile (then 40p per mile) where a reduced payment is made topped up with a periodic lump sum (in this case paid monthly).

The judge said that the FTT had not asked itself the right question and, whilst admitting that the legislation does not preclude the use of lump sums, said that in this case the lump sums were given for the provision of the car (i.e., a contribution to standing costs) and thus were not a payment for the business use of the car. This case was compounded by the fact that directors and senior staff who did little mileage received bigger lump sums than those travelling a substantial amount for the business and that within each staff category there was only one rate of lump sum not related to the size, age, and in particular the extent of likely business use of the car.

It should not be impossible for another employer, with a better starting situation, to achieve relief for lump sum payments. Nonetheless, this decision is to be appealed and Mr Summers of Grant Thornton who represented the employer at both the First-tier and Upper Tribunals rightly observes that the judge found for HMRC on the basis of SSCR 2001 Reg 22A(3)(a) when in fact it is Reg 22A(3)(c) that is pertinent - as both parties to the appeal had agreed.

Taxpayer Wins Again in IR35 Case...

In Marlen Ltd (TC1264), HM Revenue and Customs again failed to show that IR35 applied to the company. Via an agency, Mr Hughes provided engineering services to two divisions of JCB under a series of contracts.

Hughes differed from JCB's employees in that contracts could be terminated before they were due to end with little notice and no payment; he had much greater flexibility including hours of work, to the extent that he was able to work when the factory was shut; and crucially Hughes was sent home without pay when the computers went down - employees were not.

The taxpayer was represented by Accountax.

...and Again!

Another Accountax client was successful in Primary Path Ltd (TC1306) - a case which dated back to 2004. The company supplied software development services to GlaxoSmithKline plc (GSK) on a specific project, via agencies. The services were undertaken by Phil Winfield, director of Primary Path Ltd, who was engaged to provide services in respect of the design and build of a specialist interface. The Judge said it was clear Mr Winfield had responsibility for the delivery of his part of the project and applied the principles of the well-known Ready Mixed Concrete and Market Investigations cases to the facts of this case.

The Judge noted the consistency between the terms of the contract between the agency and the taxpayer, and the agency and the client.

All in all, there was no doubt that the arrangements in question were not caught by the IR35 legislation, as HMRC had contended.

Class 1A Due on Car and Fuel Benefits

In Autowest Ltd (TC1299), HMRC had established that stock cars owned by a car dealer were used for private purposes by the director/shareholder.

Not until calculations arrived of the unpaid Class 1A NIC on the car and fuel benefits did the director realise the implications of what he had agreed to, claimed that other cars were privately owned and used for private journeys and that he had 'forgotten' this during meetings with compliance officers.
The Tribunal dismissed the appeal.

Tip of the Month - September 2011

I'm asked from time to time how something like "Farmers' Averaging" affects National Insurance contributions. Simply not at all, as the averaged taxable profits form the basis of the charge to Class 4 contributions.

Then comes the supplementary - what about Class 2?

If the first of the two years was a loss - or even a profit below the Small Earnings Exception (SEE) limit so that the latter relief was obtained (either in advance or by reclaiming contributions paid after the end of the tax year) - and now the averaged profit is above the SEE limit, isn't this a problem?
The answer is - "no". The averaging applies only to taxable profits, which as we all know are the basis for Class 4 contributions. However, Class 2 liability is looked at purely on an accounts basis, i.e., before any averaging calculation for tax purposes. So the SEE stands undisturbed.

The above is taken from 'NIC Newsletter' (05/09/2011), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.