Reply to: Is Employee NI due on LC

[losingsleep]

Reaching out to Dangermaus

Sorry if this a silly question but I'm unsure as to what rate/s of NIC will be due under settlement and in future tax years.

This was my previous setup:

- I contracted via my own Ltd company
- Each month, once the end client paid into my Ltd company account, I paid the invoice from my Ltd Company account to SP Management.
- I also paid a dividend from my Ltd Company account into my personal account (less than the tax-free allowance)
- SP Management made a retainer payment into my personal account (equalling the tax-free allowance)
- SP Management made a loan payment into my personal account

@Dangermaus - I should have mentioned before that I would love to talk to you about this as I am in a very similar situation with SP Management and am trying to figure out what to do (settle or loan charge) and what my potential liability is.

I just joined CUK after lurking for several months (great advice on here), so I have no idea how to private message or anything.

@Mods - any advice? Feel free to delete this post (but I would be grateful if you can show me how to PM Dangermaus).

[losingsleep]

In the same boat

This was my previous setup:

- I contracted via my own Ltd company
- Each month, once the end client paid into my Ltd company account, I paid the invoice from my Ltd Company account to SP Management.
- I also paid a dividend from my Ltd Company account into my personal account (less than the tax-free allowance)
- SP Management made a retainer payment into my personal account (equalling the tax-free allowance)
- SP Management made a loan payment into my personal account

I am in the exact same boat. Used SP Management for a few months in 2017. Would be grateful for thoughts on this. Before and after using SP Management, I was permanently employed, so I was up to date on my PAYE and NICs.

@dangermaus - I will try to PM you if ok. I just joined so my post will need Mod approval.

[dangermaus]

Sorry if this a silly question but I'm unsure as to what rate/s of NIC will be due under settlement and in future tax years.

This was my previous setup:

- I contracted via my own Ltd company
- Each month, once the end client paid into my Ltd company account, I paid the invoice from my Ltd Company account to SP Management.
- I also paid a dividend from my Ltd Company account into my personal account (less than the tax-free allowance)
- SP Management made a retainer payment into my personal account (equalling the tax-free allowance)
- SP Management made a loan payment into my personal account

I thought I understood that as I'm self employed (I have never had any kind of payroll setup and wont until the start of the 19/20 tax year), this whole time I should have been paying class 2 and class 4 NIC

Some people have indicated that as I am an employee of my own Ltd Company, that I should have been, and should still, be paying class 1 (employers and employee's NIC)

As there is a big difference between class 4 (9%) and both class 1's (12% AND 13.8%) I would like to get an idea what I will be facing in settlement terms and also what I will be facing at the end of this tax year.

I have some loan payments in this tax year (I stopped using SP Management half way through this tax year and now have a conventional Ltd Company set-up) which I assume I will be declaring as income in my SA. This is within the 20% tax band. I also have the rest of my income for this year in dividends.

Should I be playing 20% income tax on these loan payments (on everything above the allowance) NIC (on everything above the allowance (but which class/es?)) and then dividend tax on everything else?

[Iliketax]

Seems to me like 22c makes clear the date that any NIC is due, if it's due. It doesn't change the conditions for if it's due. It is well confusing though.

That's right. It's a bit like saying that the Christmas party is on the 21st. What it doesn't say though is whether you've got a ticket.

[dammit chloe]

____________

ILT What does your statement mean: "The new regulation (22C) makes clear that employee or employer NIC is due on 5 April 2019. It does not change whether employee / employer NIC is actually due".
Is that not a contradiction? Sorry I no comprende

Seems to me like 22c makes clear the date that any NIC is due, if it's due. It doesn't change the conditions for if it's due. It is well confusing though.

[wilks]

They do not change anything. There is still no employee or employer NIC if the original employer does not exist.

The new regulation (22C) makes clear that employee or employer NIC is due on 5 April 2019. It does not change whether employee / employer NIC is actually due.

My personal view is that the existing regulation (22B) cannot work in any other way but I guess someone at HMRC wanted to make that really clear.

____________

ILT What does your statement mean: "The new regulation (22C) makes clear that employee or employer NIC is due on 5 April 2019. It does not change whether employee / employer NIC is actually due".
Is that not a contradiction? Sorry I no comprende

[starstruck]

They do not change anything. There is still no employee or employer NIC if the original employer does not exist.

The new regulation (22C) makes clear that employee or employer NIC is due on 5 April 2019. It does not change whether employee / employer NIC is actually due.

My personal view is that the existing regulation (22B) cannot work in any other way but I guess someone at HMRC wanted to make that really clear.

Thanks ILikeTax much appreciated.

[Iliketax]

I think all that was said before the below was published - not sure if this changes anything.
The Social Security (Contributions) (Amendment) Regulations 2019

Yes, and I don't really understand the implications (if any) of the change above. ILikeTax, where are you when we need you?

They do not change anything. There is still no employee or employer NIC if the original employer does not exist.

The new regulation (22C) makes clear that employee or employer NIC is due on 5 April 2019. It does not change whether employee / employer NIC is actually due.

My personal view is that the existing regulation (22B) cannot work in any other way but I guess someone at HMRC wanted to make that really clear.

[starstruck]

I think that the you need to distinguish between

Employees NIC - primary contributions

Employers NIC - secondary contributions

The legislation released very recently is for secondary contributions.

Bear in mind that the loan charge arises on employers and this seems to say that where that actually happens, secondary contributions are due.

Where the employer is around but does not pay, primary contributions will be due (thank you Iliketax) but I confess I remain unclear why in that case the employer is not assessed.

Where the employer is not around, primary NIC is probaly not due.

Thanks Webberg, much appreciated.

[webberg]

I think that the you need to distinguish between

Employees NIC - primary contributions

Employers NIC - secondary contributions

The legislation released very recently is for secondary contributions.

Bear in mind that the loan charge arises on employers and this seems to say that where that actually happens, secondary contributions are due.

Where the employer is around but does not pay, primary contributions will be due (thank you Iliketax) but I confess I remain unclear why in that case the employer is not assessed.

Where the employer is not around, primary NIC is probaly not due.

[starstruck]

I think all that was said before the below was published - not sure if this changes anything.
The Social Security (Contributions) (Amendment) Regulations 2019

Yes, and I don't really understand the implications (if any) of the change above. ILikeTax, where are you when we need you?

[Delendog]

Anything from the professionals on the treatment of NI in the Loan Charge (not settlement)? ILikeTax?

EDIT - Have re-read this thread carefully and I think people are saying there is no NI on LC where employer is dissolved. At least that's what is said by wilks here and webberg here and not disagreed with by ILikeTax here.

I hope I have understood correctly.

I think all that was said before the below was published - not sure if this changes anything.
The Social Security (Contributions) (Amendment) Regulations 2019

[starstruck]

Anything from the professionals on the treatment of NI in the Loan Charge (not settlement)? ILikeTax?

EDIT - Have re-read this thread carefully and I think people are saying there is no NI on LC where employer is dissolved. At least that's what is said by wilks here and webberg here and not disagreed with by ILikeTax here.

I hope I have understood correctly.

[Hitchphil]

Not sure about settlement when "self-employed". but I thought the Loan Charge didn't include NI for emloyment/contractor schemes where the employer is gone and the loans are > decade old. Can any of the experts comment?

My advice said as an X employee of a now defunct Ltd Co, settlement will include employees NI at the rate due at that time (12%) & not employers NI. So the effective rate for my tax years is 32% + HMRC interest = ouch!

My arrangement was Umbrella Co contracted my services to a 2nd party Ltd Co who paid me a salary & paid my PAYE NI/ENI & under that arrangement I paid 2x as much PAYE & NI as I was paying previously under dividends & NatMinWage. The balance of contract revenues went to trustees & they made EBTs to me (less a fee).

Both my Umbrella & Employer co were closed down pre 2015. My trustees still exist.

[starstruck]

i was told that because i was classed as 'self employed' by my scheme provider (not Ltd) so NI was indeed due as part of settlement. Id not even contemplated challenging this until this thread (i dont currently have a tax advisor)

Not sure about settlement when "self-employed". but I thought the Loan Charge didn't include NI for emloyment/contractor schemes where the employer is gone and the loans are > decade old. Can any of the experts comment?