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Extracts from two of the articles are produced below, but the Bulletin also has articles on tips and troncs explaining HMRC's view of the National Insurance position as contained in the revised E24 booklet (see 'NIC and tips', Taxation 3 March 2005, page 536), and on ITTOIA 2005.
Employer compliance
Unfortunately, in recent years employer compliance teams have not always taken a consistent line in respect of the treatment of cases involving NICs liability on tax paid by the employer. This is now being addressed and from the date of this article common procedures will be applied in all cases where it is proposed to enter into a contract settlement to include 'grossed up' tax being paid on behalf of employees.
No action will be taken in respect of cases settled prior to this date.
At the point where the employer is invited to pay tax due on behalf of employees, employer compliance staff will explain 'grossing up'; and advise the employer that a National Insurance liability will also arise.
As stated above, the Class 1 National Insurance liability will generally arise in respect of employees for the pay period in which the tax is paid. Primary and secondary National Insurance should therefore strictly be calculated by adding the tax paid in respect of the employee to any other earnings of that employee in that pay period.
As this is likely to cause practical and administrative problems for the employer, particularly where computations have been agreed on estimated figures, employers may be allowed to account for National Insurance alongside tax as part of the contract settlement.
Employers can, if they prefer, account for National Insurance on the tax via the payroll in the normal manner. If this is the preferred course, then in order to accurately calculate the Class 1 NICs liability the employer must:
- identify the amount of tax paid on behalf of each employee; and
- add that amount to the employee's gross pay for the pay period in which the tax is paid.
It is to be noted that the National Insurance payable on the grossed up tax are in addition to any National Insurance payable in connection with the provision of the benefit/expense.
Crofting community
TCGA 1992, s 247 allows rollover relief in certain circumstances where a landlord disposes of land to an 'authority exercising or having compulsory powers' and acquires replacement land.
Statement of Practice, SP13/93, was issued to make it clear that relief under s 247 may be claimed by a landlord, if the conditions of the section are met, where tenants exercise their statutory right to acquire the freehold reversion or an extension of their lease under the Leasehold Reform, Housing & Urban Development Act 1993, the tenant's right to buy under the Housing Acts 1985 to 1996, or the right to purchase tenanted property under the Housing (Scotland) Act 1987. It replaced SP7/90 which applied the same treatment to cases under the Leasehold Reform Act 1967.
The statement of practice has now been extended to cover cases where a crofting community body exercises the right to acquire croft land under the provisions of Part 3 of the Land Reform (Scotland) Act 2003 and has been published on the HMRC website.
HMRC Tax Bulletin 77 can be downloaded free of charge from www.hmrc.gov.uk. Subscription enquiries should be made to Mrs Sylvia Brown, tel: 020 7147 2335.
