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Peter Arrowsmith FCA highlights a seclection of NIC matters and provides a tip on the annual earnings period for company directors.  

Medical Check-Ups

HMRC has found that there are unintended difficulties with the change to the tax/NIC reliefs in respect of health screening and medical check ups made in August. HMRC has announced that, pending consultations, it will not seek to collect tax/NIC on these items for 2007/08 where they would not have been payable on the basis of the previous non statutory treatment.

Those with comments can make them by email to pa.harris@hmrc.gsi.gov.uk by 4 January 2008.

Managed Service Companies

HMRC has provided further information for workseekers providing their services through companies. Where the employment business has not, since 6 April 2007, been directly or indirectly involved in the workseeker obtaining the company, then the employment business will not be liable for any PAYE or National Insurance debt under the transfer of debt provision should it subsequently transpire that the workseeker's company is a managed service company. In practice this situation is most likely to occur where a workseeker who already provides their services through a company approaches an employment business. In contrast, where the employment business has, since 6 April 2007, been directly or indirectly involved in the workseeker obtaining the company, for example by virtue of referral of the workseeker to a service provider (a preferred supplier), then the employment business might potentially be liable for any PAYE or National Insurance debt under the transfer of debt provisions.

HMRC says that its guidance will be updated shortly and that it also proposes to publish further guidance this month to help employment businesses mitigate their risk where they use preferred supplier lists.

Tips, Gratuities and Troncs

HMRC has updated its guidance booklet on this subject (E24) a number of times in recent years.

It should also be noted that a recent Employment Tribunal case concerning the validity of National Minimum Wage (NMW) enforcement notices issued by HMRC, confirmed the clarity of the decision in Nerva v United Kingdom ((2002) 36 EHRR 31) in that money held by a troncmaster does not belong to them, but either to the employer or the employees collectively. The tribunal also found that the fact that the troncmaster's payments to employees were (perhaps quite expectedly) not paid through the employer's payroll did not affect the point that such payments could count for the NMW.

Generally, in dealing with the NIC exemption, it should be remembered that the two conditions are alternatives and not cumulative.

NIC Tip

Most advisors and companies are aware of the annual earnings period that applies to directors, but that does not mean that the rules are without many traps.

One such is particularly likely to affect start-ups - it should be appreciated that in pro-rating the first period of a new directorship it is the date of appointment as director that is relevant, not the date on which a company begins to trade or, following a period of suspension, recommences trading nor the date on which salary first starts to be paid.

For example, Hill Ltd was formed on 21 April 2007 and Gary was appointed a director on that date. The company begins to trade on 1 February 2008 and on 31 March 2008 Gary is paid £15,000. Gary's earnings period is 50 weeks (ie, UEL = 50 × £670 = £33,500), not 9 weeks (UEL = 9 × £670 = £6,030), and thus the whole of the £15,000 falls below the UEL and Gary will suffer Class 1 primary contributions at the main rate on the excess above the Earnings Threshold. It might be commonly, but erroneously, thought that a large part would attract only the 1% additional rate.

The above is taken from 'NIC Newsletter' (1/11/2007), and is reproduced with the kind permission of Peter Arrowsmith FCA, who retains the copyright.