Joined: 26 Mar 2008 Posts: 7 Location: Galway, Ireland
Posted: Sat Jun 07, 2008 12:44 pm Post subject: Timing of payments at retirement age
I have been working through the Internet Recognition scenarios for 08/09 and had a little wobbly on Scenario 4 which makes me look for some opinions.
In this scenario, the employee is paid on the last calendar day of the month and reaches retirement age on 01/01/09. The scenario results show that category C NICs are applied from January onwards but, could a case not be made that the employee reached retirement age in the December tax month which ends on 5/1/09?
It seems that the payment date is the deciding factor so I assume that if the employee reached retirement age on 30/12/08, category C would apply to the December payment??
Posted: Sun Jun 08, 2008 7:44 pm Post subject: Earnings paid after retirement age
Mike, there are three points to make here from the legislation.
First, section 6(3) of the Social Security Contributions and Benefits Act 1992 (SSCBA)says:
Quote:
Except as may be prescribed, no primary Class 1 contribution shall be payable in respect of earnings paid to or for the benefit of an employed earner after he attains pensionable age, but without prejudice to any liability to pay secondary Class 1 contributions in respect of any such earnings.
The tax month or calendar month is not therefore significant. In your example, if the employee's birthday in 1/1/09 and pensionable age is reached on that date, any payment of earnings on or after 1/1/09 is not liable for primary Class 1 NICs.
Note that, the unclear expression "after he attains pensionable age" does not mean "the day after" but it includes the day on which pensionable service is attained. Similarly, when section 6(1) of the SSCBA says that Class 1 NICs are first due when an earner is "over the age of 16" does not mean "age 17" but when the earner first becomes 16. Very confusing drafting!
There are two "prescribed" exceptions to this rule in regulations 28 and 29 of the Social Security (Contributions) Regulations 2001.
The first says that where, in the tax year in which an earner attains pensionable age, a payment of earnings is made before the date on which pensionable age is reached, and those earnings would normally fall to be paid in the following tax year, no primary Class 1 contributions are payable on those earnings.
The second says that if earnings are paid after an earner reaches pensionable age and those earnings would normally fall to be paid before the date on which pensionable age is reached, the payment is nevertheless liable for primary Class 1 NICs. _________________ Ian Congreave, PayPerShop owner
Joined: 26 Mar 2008 Posts: 7 Location: Galway, Ireland
Posted: Wed Jun 11, 2008 11:28 am Post subject:
Thanks Ian,
That clarifies things. It makes sense that, since the payment was for the period before the employee reached retirement age, it should attract normal NICs.
However, what I find confusing is what seems like a lack of consistency when looking at all of the rules. In some cases the date of payment is the deciding factor, whereas in others, such as SPP recovery, the month in which the payment was "earned" is the deciding factor. I suppose some of this is due to the fact that different government departments are involved in drawing up the rules.
In Ireland, we changed from an 06 April tax year to a normal calendar year some years ago. One consequence of this is that the tax month is the same as the calendar month and it eliminates the need for a lot of rules and specifications. I don't imagine that the UK will make the move to a calendar tax year because of the huge body of regulations that have been developed to manage the current system.
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