Personal tax summary
Commentary and reactions
You have stated ''Personal allowances raised to £9,205 in 2012-13 ''
'' . I thought they were £8105 from April 2012. Do you not mean for 2013/14 they go up to £9205?
The post has now been amended; it was my mistake when setting up the at-a-glance guide. the information in the linked article is correct.
The link for the table for 12/13 takes me to a page with 11/12 on.
I missed the second link when I updated this page last night. Address has now been corrected.
John - the "Squeeze continues on company cars" link also goes to the page re last year's budget.
I think the link should be:http://www.accountingweb.co.uk/article/squeeze-continues-company-cars/52...
The link to Tax tables under Highlights takes you to those for 2011/12 and 2012/13.
Also, note that the AEA for CGT is wrong in 2012/13 - it should be £11,200 and not £10,600 - see SI 2012/881 laid on 20 March and published yesterday.
a good day are you John?
so which do we believe the rate published in Budget notices and tables or the Statutory Instrument published on 20 March 2012?
Another example of the left hand does not know what right hand is doing?
I'm never the happiest bunny at this time of year - there's so much information to process in such a short time that errors will creep in, which drives me mad. But at the same time, more than 5,000 people have read this article (and the chastening comments) in the past hour and lots more people have joined AccountingWEB as a result.
So although it can be stressful, Budget day and the aftermath are very good for us.
For a more definitive analysis of the issues affecting small businesses, I could also recommend Rebecca Benneyworth's Budget Report, which should be available on Monday.
At about 13:15 pm GMT on Thur 22 March 2012, I heard David Gauke MP - Exchequer Secretary to the Treasury - say on R4’s news programme “The World at One” that “those over 65 will not pay National Insurance contributions”.
Well AWEB readers, that's WRONG, isn’t it? In my opinion: Those over 65 and who are caught by IR35 [as now codified in ITEPA 2003 section 50 onwards] have to pay EMPLOYER’S Class One National Insurance contributions, e.g. as set out in HMRC’s Tax Manual as follows:
QUOTE ESM3169 - How to work out the deemed payment: Step Eight
Paragraph 7 Schedule 12 Finance Act 2000/Section 54(1) ITEPA 2003
Regulation 7(1) SI 2000 No.727
The last stage in the calculation of the deemed payment is to take the figure at Step Seven and apportion it between the deemed payment and the employer’s Class 1 NICs due on that payment. ENDQUOTE.
SOLUTION: May I suggest that – in order to calm down the charge of a “Granny Tax” by Chancellor Rt Hon George Osborne MP, that in future:
Employer National Insurance Class One contributions should be waived by HMRC for any worker aged over 65 that may be caught by IR35, with effect from 6th April 2012?
It's not the owner of the company that pays employer NI, it's the company itself, so strictly speaking David Gauke is right. Not much comfort if you happen to be caught by IR35 though.
More worryingly, apparently there is going to be a consultation on proposals to require all office holders and "controlling parties" to deduct PAYE on any payments made to themselves. So not just disguised employees.
That really would be the nightmare scenario. Let's hope that never happens.
Hi cfield! Your point "the company itself" seems to me to refer to the "intermediary" of the IR35 legislation, and not to refer to the HMRC's end client (i.e. the "disguised employer") under the "hypothetical contract" that HMRC would construct to link the worker (as a 'disguised employee") to that "disguised employer". [In the words of SI 2000/727: Worker’s attributable earnings—deemed payment
8.—(1) The amount referred to in Step Nine of the calculation in regulation 7(1) is treated, for the purposes of Parts I to V of the Contributions and Benefits Act, as a single payment of the worker’s attributable earnings made by the intermediary on the 5th April in the tax year concerned ...]
Am I correct in thinking that we both agree that the the HMRC's end client (i.e. the "disguised employer") does NOT itself directly pay to the appropriate Government Department the employer NI due under the Contributions and Benefits Act(s) etc?
Consequently, it seems to me that the "employer NI" (National Insurance) payment is funded out of the money earned by the worker arising out of the monies due under the contract that the intermediary has made to realise the services of the worker.
In particular, IF the worker is over State Pension Age (currently 65 years) THEN due to IR35, contrary to D Gauke MP, the worker will be one of “those over 65 [who do] pay National Insurance contributions” out of the money earned by the worker arising out of the monies due under the contract that the intermediary has made ... .
We seem to differ around the word "treated" in s 8(1) of SI2000/727 as amended by ITEPA 2003 etc, that suggests to me something that might not be true literally ... !
I agree with you regarding the "nightmare scenario" of your last 2 paragraphs, hence I believe that IR35 must not remain unchallenged.
The original draft of IR35 did in fact put the onus on end users to account for PAYE (including employer NI) back in 1999 but there was such an outcry about it (and rightly so) that it was swiftly made the responsibility of the intermediary.
The end user does not account for employer NI. It is up to the "disguised" employee to negotiate a rate that recognises the fact that the end user is saving employer NI and that the intermediary would have to pay it instead (if caught by IR35).
However, many contractors are unaware of that fact, and think that the salary they would have earned as an employee is the correct benchmark.
Not only that, but I've known agencies to play hardball over this and refuse to increase their rate when the contractor works through a company, even though they know full well that they are saving employer NI and that the contractor's company would have to pay it instead.
The reality may be that a pensioner caught by IR35 would have to fund the employer NI payable by their company out of available profits, but Mr Gauke is correct in the sense that the pensioner would not be paying it directly.
It's a bit like us bailing out the banks. None of us do so directly, but we are doing so indirectly through taxation, low interest rates on savings and cuts in public services.
The SI is law - the Budget docs aren't. But the SI could be overtaken, I suppose. Either the SI's just gone ahead automatically, increasing the AE in line with the RPI because someone's just forgotten the AE was meant to be frozen, or a decision's been made not to freeze. We'll just have to wait until it's clarified!
EDIT: I've just e mailed someone in 100 Parliament St to ask if this can be clarified.
Hi cfield! Thanks for you kind reply! May I gently point out that - as part of the vogue for tackling alleged tax avoidance - HMT seems to make great play of "the spirit" as well as the letter of taxation? So, here’s an ‘acid test hypothetical question’ to clarify:
Suppose that the pensioner/worker aged over 65 (who genuinely believed that s/he was not caught under IR35 as a ‘disguised employee’ after making a review of the then available facts) had (as Director) decided to leave insufficient funds in the ‘intermediary limited company’ to cover the ‘employer NI payable’ as subsequently decided by HMRC - with the result that the ‘intermediary limited company’ were put into liquidation by HMRC trying to recover what NI monies allegedly due that they were able to - could that same pensioner be held liable by a court of law to personally pay the balance of the outstanding ‘employer NI payable’ monies?
Because IF the answer to this ‘acid test hypothetical question’ is ‘yes’, THEN it seems to me that the pensioner (over 65) would have to partly ‘pay National Insurance contributions’ – contrary to the radio assertion of David Gauke MP, Exchequer Secretary to the Treasury!
liable for their own Ni (By the way did you know that you can be put in prison for non payment of NI but not for income tax).. So the answer is simple isn't it.
There seem to be 2 strands going on at once here.
Anyway, if a contractor had reasonable grounds for believing that he/she was outside IR35 but was caught nonetheless, I don't think they would be liable for any shortfall in the company, provided of course that there was no sudden increase in dividends (or other cash transfers) after the IR35 enquiry had already been opened.
That's my understanding anyway. However, proving it would be a different matter. That's why I encourage my contractor clients to self-review their status in a written report shortly after starting a new assignment, weigh up all the arguments for and against, come to a balanced conclusion and then send it to me by e-mail so there is contemperaneous evidence. That would deflect any accusation by HMRC that they had simply ignored the issue altogether.
I suppose it is possible that a contractor could be forced to pay IR35 demands out of their "own" pocket if the company had insufficient funds, but surely that would be more in the way of a compulsory indemnity. The legal liability would still remain with their company.
John, I'm sure you can only be sent to jail for not paying your own NI, not your employer's.
Disregarding perks, I thought that the cost to the employer of employing someone was the sum of gross salary and employer's NIC. I also thought that this cost was equal to the net pay received by the employee plus the amount given to HMRC. If this is true (but maybe it isn't), then politicians, civil servants and most journalists are being economical with the truth:
 As already mentioned in this thread, a person over 65 years of age running a personal service company (IR35) pays ersNIC.
 P60s, P45s, etc. should explicitly show gross salay, ersNIC, income tax and eesNIC in such a way that even Dimbleby from Radio 4 Any Answers can understand that employees, even if over 65, pay NICs.
 Finally, that the phrase "employer's national insurance contributions" is an euphemism because the whole NIC is effectively borne by the employee.
End of rant
Hi adiaz73888! You may be interested to learn that (on 23 October 2002, c103w) House of Lords Hansard Written Answer, as on e-link:
shows that Lord McIntosh of Haringey replied "The Government Actuary's Department estimates that employers' national insurance contributions relating to employees over state pension age amount to around £300 million a year."
Given the outrage over the "Granny Tax", it seems that a way out for the Coalition to:
(1) Save face for the 2015 elections by creating work opportunities for pensioners who have lost the value of their savings through low interest rates and through quantitative easing lowering annuity rates, and importantly help stave off ill health/dementia etc, &
(2) Stimulate UK economic growth without the economic costs of sucking in more net immigration (thus avoiding congestion costs e.g. new road tolls, etc) would be to:
SCRAP employers' national insurance contributions relating to employees over state pension age with effect from 6 Apr 2012, inc, also as a tax simplification.
QUESTION to adiaz73888: Do you agree that employers' national insurance contributions relating to employees over state pension age should cease immediately?
BTW: The £300m would've included the IR35 NIC -ER payments due, wouldn't it.
The Red book includes a figure for tax saved by not indexing the CGT annual exempt amount - look at page 52 item b. I suspect that someone fouled up and the SI will be withdrawn.
This is correct, someone messed up even if there are not admitting it. I tookup the query with the CIOT who contacted the head of CGT at HMRC who has confirmed that the AE is frozen for the current year. Sthe SI was issued because the law said that the AE shoud go up each year in line with inflation!!!
No one on their staff bothered to check that the autumn statement already specified that the increase would not happen...
So the SI is to be ignored according to CIOT confirmed by HMRC
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