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HM Revenue & Customs has today announced that it will refund the Class 1A NI Contributions assessed on holiday homes bought through a company - in cases where (broadly) the company has been created in order to buy the holiday home.

Many readers will remember that 'personal' ownership - particularly by foreigners - of property in some of the former Eastern Bloc countries was either difficult or impossible. For this and other reasons, many UK individuals, families, etc., incorporated companies in order to acquire overseas property. Naturally. they would often become directors of those companies.

As UK tax law read at the time, those directors were potentially liable to a 'benefit in kind' tax charge on the provision of living accommodation by their company - even though they had personally funded the property. The company was also potentially liable to a National Insurance charge.

At the time, very few Inspectors of Taxes were keen to pursue this, because of the obvious unfairness.

This did not, however, prevent all Inspectors of Taxes from assessing individuals to Income Tax, or the company to National Insurance. The fact that this happened so rarely meant that there was little publicity of the inequity - although this was cold comfort to those who got hit for a tax charge.

Thankfully, the matter was put beyond doubt in Finance Act 2008, which said that in circumstances such as those outlined above, it was deemed that there had never been a tax charge. Unfortunately, this did not completely remedy the situation for NICs on the company: whilst there would be no NIC charge after 2008, the older NICs were allowed to stand.

This has now been reversed: as trailed by Peter Arrowsmith in his latest NIC Update - April 2011, HMRC published new regulations on 17 March so that these pre-2008 NICs could also be reclaimed.

Further information can be found on HMRC's website at Refund Applications Invited for Class 1A National Insurance Contributions (NICs) Paid in Respect of Certain Overseas Holiday Homes Purchased Through a Company

It was understood that HMRC would be proactively contacting all those whom it knew to be eligible for an NI refund based on those who had claimed refunds from 2008 - this certainly appears to be borne out by the last paragraph of their press release. But HMRC is imposing a time limit on claiming the refund, and there's no guarantee of how accurate/thorough they will be when it comes to identifying potential claimants!