Firm News

National Insurance Holiday for New Businesses

• The new regional National Insurance Contributions (NICs) holiday for new businesses came into effect 6 September 2010 after being announced in the budget on 22 June 2010.

• The scheme will last from 22 June 2010 to 5 September 2013.

• New businesses established since the announcement in the budget on 22 June, and which meet the qualifying criteria, will be eligible.

• The NIC holiday basically provides exemption from up to £5,000 of Class 1 employer NIC for each of the first 10 employees hired in the first year of business. Each holiday will last for the first 52 weeks of each employee’s employment.

• It is important to note that you must still deduct and pay to HMRC all of your employees Class 1 NICs as well as Class 1A.

• This £5,000 limit applies to the whole of the holiday period for each qualifying employee. If the employers NICs due exceeds this limit at any stage during the holiday period, you must begin paying employers NICs due in the next payment.

• You can only apply for the NICs holiday if your principal place of business is located within designated areas of the UK: Northern Ireland, Scotland, Wales, East Midlands, North East, North West, South West, West Midlands and Yorkshire and Humber.

• The NICs holiday is voluntary; therefore each business needs to make an application to HMRC. You must not utilise the scheme until HMRC confirms that you are entitled to do so.

• You can apply online (after you have registered for PAYE) or by post. Please use the following link which will take you too the appropriate page. www.businesslink.gov.uk/nicsholiday

• The types of business that can apply are sole traders, companies or partnerships carrying on a trade, profession or vocation. Please also note that property business and investment business are also able to apply.

• Managed service companies do not qualify for the holiday. There are also restrictions where an employer is within the intermediaries’ legislation (IR35).

• The employer NICs holiday is considered to be a ‘de minimis State Aid’. Therefore some trade sectors do not qualify under EU law. These are businesses involved in the coal sector, road freight transport sector and business involved in export-related activities. There are other sectors who qualify for a reduced rate: road transport, agriculture and fisheries.

• If you have already made employer NICs that you realise could have been withheld under this scheme, you first need to apply for the scheme and then reduce future PAYE amounts by the appropriate figure.

• To calculate the employers NICs you can withhold please use the form (for each employee) using the following link. This can be completed on screen via ‘create the recording sheet’. http://www.hmrc.gov.uk/forms/e89.pdf

• There are anti-avoidance rules as to the meaning of a new business. E.g. setting up a new business which you currently operating to take advantage of the scheme or taking over a business which is already claiming the holiday will not qualify.

• If an employee leaves, his or her replacement does not qualify if 10 employees are already in place.

• There will be a separate NIC holiday end-of-year return as at each 5 April. This should enable HMRC to avoid picking up the NIC holiday relief obtained as what would otherwise appear to be an underpayment on the P35.

• Finally, the legislation is not expected to receive Royal Assent until early 2011 so if for any reason the NIC holiday is never, in the event, enacted, any relief obtained will be repayable as extra Class 1 NICs by 19 April 2011.

For further information contact Elliot Buss ,Tax consultant at BPU Accountants Tel: 029 20734100 or email elliotb@bpuaccountants.co.uk