Modified NICs arrangements under EP Appendix 7A or 7BThursday, January 13th, 2011
HMRC has identified common errors made by employers who use EP Appendix 7A and 7B procedures. This following article was published on 6 January 2011 and provides guidance which should help employers to follow the procedures correctly.
EP APP7A – Modified Class 1 and Class 1A National Insurance contributions for expatriate employees subject to an EP Appendix 6 agreement
EP APP7B – Modified Class 1 National Insurance contributions for employees assigned from the UK to work overseas
Employers who operate these schemes estimate:
- earnings paid to or for the benefit of employees in year when calculating Class 1 National Insurance contributions (NICs)
- the amounts of general earnings chargeable to income tax when assessing Class 1A NICs due on benefits.
For employees to be included in such arrangements, they must be paid at a rate above the Upper Earnings Limit (UEL) throughout the year except in arrival and departure months, which may be a part month.
For Class 1 NICs purposes, when estimating the earnings upon which Class 1 NICs are due, the earnings are estimated at the start of the tax year (or at the time the individual arrives in the UK or leaves the UK on assignment) and reviewed between December to April to take account of any material changes. The final reconciliation based on accurate details of earnings must be made in time to include the actual primary NIC paid by the employer under any social security equalisation arrangements in the employee’s Self-Assessment tax return. The NICs Settlement Return and any balancing payment should be submitted by 31 March following the end of the tax year.
HM Revenue & Customs staff in Personal Tax International and the Employers Unit in Manchester have identified some common errors and areas of confusion. This note provides some guidance which should help employers and/or their agents understand what they have to do.
- The monthly estimated payments for Class 1 NICs should be made under the main PAYE (Pay As You Earn) scheme with any tax, if appropriate, for the employees covered by the arrangements.
- The Employer Annual Return (form P35) and End of Year summaries (forms P14) for the main PAYE scheme should include the primary and secondary Class 1 NICs due on the estimated earnings.
- The NIC Settlement Return should be submitted under the appropriate EP APP7A or EP APP7B reference number.
- The balancing payment for Class 1 NICs should be submitted under the accounts office reference number for the EP APP7A or EP APP7B scheme. To ensure it is allocated correctly the period to which it relates should be added at the end of the accounts office reference. For payments in respect of the 2009-10 tax year, for example, add ‘1013’ to the end of the accounts office reference. The number ‘10’ represents the year 2009-10 and ‘13’ represents the month.
Where Class 1A NICs are due:
- Form P11D(b) must be submitted by 31 January following the end of the tax year in which the benefits were provided and must show the correct benefits liable to Class 1A NICs and not the estimated amount of benefits.
- The Class 1A NICs payable in box 4F of the P11D(b) must show the Class 1A NICs due on the estimated earnings and paid by the 19/22 July following the end of the tax year in which the benefits were provided, if the employer did not pay Class 1 NICs on the estimated amounts of the benefits or ‘Nil’ if the employer paid Class 1 NICs on the estimated amounts of the benefits. The Class 1 NICs paid on the benefits will have been paid in-year and included on forms P14 and P35 submitted by the 19 May following the end of the tax year.
Templates for the settlement reports are available on the website, please follow the links below.
All EP APP7A NIC Settlement returns should be submitted to:
Personal Tax International, Trinity Bridge House, 2 Dearmans Place, Salford
Where the outbound employees covered by EP APP 7B are included on a dedicated expatriate scheme for inbound assignees, the EP APP7B NIC Settlement Return should also be sent to Personal Tax International.
All other EP APP7B NIC Settlement returns should be submitted to:
Customer Operations PAYE, Employer Office, BP4009, Chillingham House, Benton Park View, Newcastle NE98 1ZZ
Employers who use modified NICs arrangements under EP Appendix 7A or 7B