Misleading gov.uk, Class 2 NIC back payments, Employment allowance

Oxford Dictionaries has declared the 2016 word of the year to be: ‘post-truth’. Bear this in mind when searching for information on gov.uk, or advising clients about what they may have read. Our tax tips this week include a number of ‘post-truth’ examples from gov.uk that could impact advice you give clients. We also have tips on how to deal with a deficiency in class 2 NIC, and some practical advice for claiming the employment allowance.

As usual we have summarised below one of the 3 tax tips we shared by email with our general practice accountant subscribers last week. Further details are in a box on the right.

Class 2 NIC back payments

From 2015/16 onwards the self-employed are due to pay class 2 NIC alongside their self-assessment. This has caused all sorts of problems with the HMRC computer.

The correct amount of class 2 NIC for 2015/16 is normally £145.60 (52 x £2.80), but in some cases the computer thinks it should be £179.40 (52 x £3.45) which is the special rate for share fishermen.

Occasionally the tax computation includes a nil liability for class 2 NIC, although the self-employed profits exceed the small profits threshold of £5,965. When questioned HMRC say the taxpayer hasn’t been registered for class 2 NIC. Where the taxpayer can prove he has paid class 2 NIC for earlier years, the HMRC position should be challenged without delay. If HMRC’s record of class 2 NIC payments for the taxpayer is incorrect he will not receive the level of state pension he is expecting.

There are taxpayers who haven’t paid class 2 NIC for many years, as the underpayment was never chased up, or they didn’t realise they had to pay class 2 and class 4 NIC. For those cases the taxpayer should be advised to pay the class 2 NIC due for as many years as HMRC will accept. This will be a minimum of six years, and the payment will generally need to be paid by 6 April 2017, but the deadline may be longer if the taxpayer is close to retirement age.

If the taxpayer has decades of unpaid class 2 NIC, look at the case of Richard Thomas. He won the right to pay voluntary class 2 NIC back to 1976 as he had been badly advised, and HMRC had not chased for payment.

Pensions, Employers, Employment Allowance

Last week we examined the changes to pension tax relief announced in the Summer Budget, and the increase in the NMW which employers will need to pay from October 2015 and April 2016. There were also some issues concerning the employment allowance, which we discuss below.

Employment Allowance

The employment allowance was supposed to be easy for all employers to claim;just tick box on the EPS and the allowance would apply for the current and allfuture tax years. But we know it hasn’t been that straightforward.
Certain employers aren’t eligible to claim the allowance if more than 50% of the business income is deemed to be public sector work – such as medical doctors(GPs) who work predominately for the NHS. Also where employees work in a domestic capacity in the employer’s home the allowance is blocked. This covers;nannies, gardeners and domestic cleaners, but not carers who can qualify for the allowance from 6 April 2015 (not for 2014/15).
Some employers have found that their claim for the employment allowance for2015/16 has been ignored or removed by the RTI computer. Where the employer pays the amount of PAYE they believe is due, excluding the employers NIC covered by the employment allowance, HMRC have chased for the unpaid NIC. If this happens to your clients there is no alternative but to phone the HMRC employer’s helpline to get the employment allowance reinstated.  
In the Summer Budget we learnt that the employment allowance will increase to £3,000 from 6 April 2016. This good news was tempered by a further block on the allowance for companies where the director is the sole employee.
We have no further information on this other than the announcement in the Budget red book. We hope that HMRC will provide clear guidance as to whether partnerships and sole-traders who employ a single worker will be affected by this block on the employment allowance – we assume not.
Where a company employs someone other than the director, perhaps the director’s spouse, we assume the employment allowance will be claimable.However, there is no indication yet as whether the second employee will be required to be paid at a level that attracts employer’s NIC. We will keep you informed when more details are released.

This is an
extract from our tax tips newsletter dated 30 July 2015. The newsletter
itself contained links to related source material for this story and the
other two topical, timely and commercial tax tips. It’s clearly written
and extremely good value for accountants in general practice. Try it
for free by registering here>>>