Gratuities attract NICs
Tips and gratuities have long been exempt from Class 1 NICs by regulation.
In May 2003, the Special Commissioners gave their decision in Channel 5 TV Group Ltd v Morehead (2003) SpC 369 to the effect that gifts by a non-resident investor in Channel 5, to Channel 5 employees, were exempt gratuities (reg 19(1)(c) of the Contributions Regulations 1979, now para 5, part 10, Schedule 3 to the Contributions Regulations 2001). The consequence was that the payments were free of NICs.
In outline, the investor had made a substantial return on its investment and, on the sale of its share of the business, decided to thank the employees of Channel 5 who had contributed, at least in part, to the investment's success. The investor was not the employer of those who received the gifts, nor did it control the employer. The government announced that it would legislate to change this NI-free result and it has now done so.
The Social Security (Contributions) (Amendment) Regulations 2004, SI 2004/173, came into force on 23 February. They effectively impose an NIC charge on the employer if it is connected with the person making the payment.
The wide definition of 'connected persons' in s839, ICTA 1988 is used, so that in the Channel 5 case, the fact that the investor and the employer acted together to exercise control of the company would have made them 'connected' in relation to that company.
There are some exceptions, so that when tips in restaurants are shared out by tronc-masters there continues to be no NIC liability, and when the employee actually works, at an arm's length rate of pay, for more than one employer and they are both connected with each other, only the actual payer suffers the employer's secondary NIC charge.
PAYE codes wrong - again
It seems that many notices of coding for tax year 2004-05 include a figure for car benefit based on the 2003-04 amount and do not take the April 2004 programmed increase of 2% of list price into account. The increase has been planned for around three years, so it's unclear at this stage - to outsiders - why the code numbers are wrong. The Inland Revenue will correct the codes in due course, so employers may expect further P6 forms for all company car users.
Change to temporary NI numbers
Until now, it has been possible to use a temporary NI number for an employee who is unable to supply the correct details. This consisted of the letters 'TN' followed by a date of birth and an M or F suffix depending on the employee's gender. From 6 April 2004 such temporary numbers will no longer be acceptable to the Revenue. If the NI number is not known, the gender and date of birth details should be completed on any data submissions to the Inland Revenue, and the first two digits left blank.
In exceptional cases where the date of birth is not known, the date should be completed as 01011901.
Revenue roadshow
During March the Revenue is delivering a roadshow called Employer Talk in numerous locations around the country. Presentations and an exhibition aim to update employers on topical payroll matters (including Budget 2004 information where available), online filing of returns and notices, and tips and reminders to save employers time and trouble. Details of dates and venues are available from the employers' section of the Revenue website (www.inlandrevenue.gov.uk).
Redundancy pay rise
From 1 February the statutory maximum for a week's pay for use in calculating redundancy payments rises from 260 to 270 (SI 2003/3038).
Employment taxes update is compiled by David Heaton and Lesley Fidler of Baker Tilly, Leeds. David Heaton is the author of CCH's annual, National Insurance Contributions.