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Regional NIC holiday for start-ups kicks off

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3rd Sep 2010
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New businesses outside of London, the South East and East of England can start claiming a holiday from NIC contributions for their first 10 employees starting from Monday 6 September until 5 Setpember 2013.

The Regional Employer National Insurance contributions Holiday for New Businesses, to give it the official name, was unveiled by Chancellor George Osborne’s June Budget and will allow new employers to make a deduction against the amount of Class 1 NICs they pay each month or quarter. The holiday will apply to the first 10 “qualifying employees” taken on by companies that started after 22 June Budget statement.

An HMRC Technical Note (140kb PDF) sets out the detailed conditions attached to the holiday, which will apply during the employees’ first year with the firm or until they leave, and will be limited to £5,000 for each employee.

Qualifying criteria
Because of European Union restrictions on state aid to certain industries and the potential for existing companies to reconstitute themselves in the hope of gaining the relief, certain criteria have been set out for qualifying firms and employees:

  • Anyone who has carried on a similar business in the previous six months to starting a new company will not qualify for the holiday. Nor will any business that takes on the activities of an existing company through a transfer from one person to another. business.
  • All employees, including directors, count as qualifying employees under the scheme, including part-time/casual employees and those who earn less than the secondary NIC threshold (currently £110 per week). Once the company has taken on its first 10 employees, no other employees will qualify even if any of the first ten employees leave (including those who might have gone before 6 September 2010).
  • Contractors who are caught by the IR35 personal service companies rules are considered employees under the Social Security Contributions (Intermediaries) Regulations 2000 and Social Security Contributions (Managed Service Companies) Regulations 2007, but are not qualifying employees under the NIC Holiday regulations. However a new intermediary company that pays these individuals would be eligible for the holiday, subject to fulfilling the other qualifying criteria.
  • Europe’s State Aid rules are designed to prevent members from supporting businesses in a way that would give them an unfair advantage over competitors. Businesses in most sectors are allowed to receive aid of up to €200,000 over a period of three years, but there are limits for certain industries such as coal, which is not allowed to benefit from State Aid; agriculture, where the limit is €7,500; fisheries and aquaculture, where the limit is €30,000; and road transport which has a €100,000 limit. Companies in these restricted sectors will only be able to claim the NIC holiday up to their industry’s State Aid threshold. And no State Aid will be allowed if the amount of the NIC holiday combined with any aid already provided would take the recipient above the €200,000 block exemption or the specific industry ceiling. Further details will be available from the BusinessLink website.

Regional restrictions
The regions in which new companies will not be able to benefit from the NIC holiday include:

  • Greater London
  • Eastern Region: Bedford, Cambridgeshire, Central Bedfordshire, Essex, Hertfordshire, Norfolk and Suffolk and the non-metropolitan districts of Luton, Peterborough, Southend-on-Sea and Thurrock.
  • South East:  Buckinghamshire, East Sussex, Hampshire, the Isle of Wight, Kent, Oxfordshire, Surrey and West Sussex and the non-metropolitan districts of Bracknell Forest, Brighton and Hove, Medway, Milton Keynes, Portsmouth, Reading, Slough, Southampton, West Berkshire, Windsor and Maidenhead and Wokingham.

The technical note adds another caveat by pointing out that the National Insurance Bill has yet to clear Parliament and is expected to receive Royal Assent in early 2011. HMRC Commissioners are able to deploy their existing collection and management powers to allow the holiday to operate from 6 September 2010, but if for any reason the draft legislation published by HMRC is not enacted, firms that took advantage of the holiday would have to pay back any National Insurance contributions they withheld by by 19 April 2011.

How the NIC holiday will work
Aside from exempting employers from paying the contributions for their first 10 employees, the NIC holiday makes no other change to the rules for calculating, recording and reporting Class 1 NICs. New employers will still have to calculate tax and NICs liability on earnings paid to their employees and make payments to HMRC monthly or quarterly. Once they have calculated the full liability, companies covered by the holiday will be able to reduce their monthly/quarterly payment by the amounts that would have been paid for their qualifying employees.

At the end of the tax year the new business should submit the normal end of year returns showing the full amount of NICs that were due in respect of employees. Employers benefitting from the scheme will need to send in a separate “Holiday” return showing the deductions made to explain the apparent underpayment on their P35. This holiday return will need to be submitted to HMRC at the same time as the end of year tax return.

HMRC advises employers to keep and preserve any documents or records relating to its entitlement and deductions for each qualifying employee, and its status under State Aid rules, for at least three years.

Missing the target?
At a time of deep cuts in spending within the public sector and a major rationalisation of government support schemes, small businesses will be thankful for any help they can get. But UHY Hacker Young partner Roy Maugham, complained that some of the country’s most deprived districts have been excluded from the holiday scheme. “The Government is denying invaluable NICs savings to many of the businesses that would need them the most,” he said.

Greater London includes six of the most deprived boroughs in England and South East areas such as Portsmouth, Southampton and Southend-on-Sea have with high concentration of public sector workers will miss out on a scheme that was intended to lessen the impact of spending cuts, he added.

“Restricting the scheme offering by geography rather than by need is too rough a criterion. It means the scheme won’t be fair and won’t fully achieve its purpose,” said Maugham.” It seems to me that this is one of those policies produced in the rush of the Emergency Budget without too much thought about the details behind it.”

Replies (5)

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Wild Billy Hickok
By Wild Billy
03rd Sep 2010 20:09

More rent-a-quote nonsense

So Mr Maugham criticises a policy because basing it on geography rather than need makes it "unfair"? Would Mr Maugham like to make a practical suggestion about how you would target the holiday on need? I feel sure that a policy that targeted some districts across the whole country but not others would be a nightmare, complex, and be entirely unfair on those on the boundaries in different towns. Incidentally, this is the same chap who says the tax system is too complex and taxes are too high: http://www.telegraph.co.uk/finance/economics/7962524/Tax-regime-drives-20pc-of-big-businesses-to-consider-leaving-UK.html. Strange then to criticise a scheme, albeit for small rather than large businesses, that reduces the tax burden for lots of new businesses. Lucky he doesn't need to be consistent in his rent-a-quotes...

But generally a brilliant insight into the minds of those who like to shine their exertise on the rest of us; let's criticise the Government for introducing a policy to help new businesses becaue it excludes some businesses. Well, Mr Maugham, you may not realise there is a limited pot of money available. The alternative is rarely making it available to everyone; the alternative it is usually making it available at all. Worth thinking about.

And of course Mr Maugham fails to put the holiday in the broader context of other tax reductions for small businesses, including small profits rate of CT and business rates holiday. Life ain't so bad.

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By NeilW
06th Sep 2010 12:24

Crazy

Who actually thought this complex piece of bureaucracy is going to help improve anything.

Madness.

 

 

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By Michele Shapland
06th Sep 2010 14:42

NIC holiday

While I support the idea behind this new initiative I can see that there might be some headaches ahead for those businesses qualifying for the scheme. As the separate return required that the business is on the scheme cannot be filed on line but will be sent in paper form, which as we know can sit at HMRC's office for weeks before correspondence is processed,  while the actual P35 is filed on line and  will show the full amount of NIC due and NIC paid as less than that amount, I anticipate that those employers will be receiving demands for failing to pay the difference and being charged penalties. This is going to require a lot of appeals on behalf of employers and/or advisers. This is going to create a lot of paper and require a lot of time to sort out. Unless someone has the foresight to include a box on the P35 which could be ticked to alert HMRC that the business has operated the NIC holiday scheme. I suspect this will not be the case...

 

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By Gina Dyer
07th Sep 2010 17:10

Comments

We've had a few comments in about this story. Here's one from the Forum of Private Business:

“For years small business taxation has steadily increased, so this reduction in NI for some firms has to be welcomed,” said the Forum’s chief executive Phil Orford. “However, if the government is serious about creating conditions for real economic recovery based on strong small business growth, it needs to introduce even bolder tax policies.”

He added: “Given the significant threats to cash flow and business growth from issues such as a lack of bank finance and increasing late payments, recruitment is likely to be slow during the first 12 months for many new firms. The scheme should be available for a longer period than just the first year they are in business.”

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7om
By Tom 7000
07th Sep 2010 17:59

Will it reallly help?

 Now, you are not allowed a business split or a takeover. You also can't be involved in a similar prior one, so I can't open a branch in Newcastle and qualify, or take someone over in Leeds. Ok I get it...

Over the last 10 years, I reckon I have seen 2000 clients start new businesses that would have qualified... but all here ...ie here in the South East ..oh...so they dont . However even if they did,  I reckon out of them there are 5 that have more than the MD and his wife working there  ( and we all know the MD and his wife pays no PAYE). None have more than 5 employees. Most New businesses struggle to get the work to keep the founder busy let alone new staff...

 

So in my opinion its a lot of hot air and you can argue about geography but its irrelevant. The Govt reckon it will create 800,000 new jobs....I think they will be lucky if they get 8,000.

Which works nicely for the Govt Big Tax saving ..Fanfare...result...no loss to treasury

Bet you a pint they dont publish the take up rate....

But then what do I know, Im just a simple accountant...sigh...

 

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