Employers NIC

peaman

A client's bookkeeper has made a mistake on the payroll.

They have an employee over retirement age which they mistakenly stopped deducting employers NIC during 2011/12. They did correct the error after six months, but it has left them with employers NIC underpaid by around £800.

They didn't realise they made the mistake, they were manually reducing the employees and employers NIC to nil when they ran the payroll as they realised the employee was retired, but after six months they 'read somewhere' that they should have a 'C' NIC code, which corrected things.

Whilst preparing the accounts I noticed the error and told them we should adjust the P60 & P35 and pay the underpayment to HMRC, but they are reluctant to do this!

What are the implications of the underpaid employers NIC? Are HMRC likely to spot the error? Will the underpaid employers NIC affect the employee? She is over retirement age and the employees NIC were correct.

paulstafford

Have you thought about your own position if the client does not pay the overdue NIC? I'm thinking of your responsibilities under Money Laundering regulations. In a nutshell if they don't pay up they are evading tax.

peaman

Thanks Paul

Yes, I am aware of my MLR duties, I just wanted to know what are the implications with HMRC if they don't repay the employers NIC. I have seen HMRC chase underpaid tax loads of times, but I don't remember them chasing for underpaid NIC.

Basically, I just wanted more ammo to convince them that it would be wise to pay the underpaid NIC.

I am as popular as a fart in a lift with the bookkeeper already as I spotted several things wrong with the books that will cost them about £3.5k in additional VAT, plus I noticed several things that the previous accountant did wrong and I don't want them to think I am just too fussy!

ijaccounting

ERS NIC will not effect the employee whatsoever, as this is an additional tax burden for the employer. the deduction should have been paid alongside the PAYE the following month. the correction you suggested will not show on the P60 as this as I mentioned above an employers tax. you were right in adjusting P35 and if they don't want to do it then this their choice; you warn them. they could expose them self to serious penalty for underpayment of tax.

peaman

I didn't think employers NIC would affect the employee in any way, but wanted to check.

Yes, I will need to amend the P14, not the P60. That's what I mean't.

I assume the penalty is based on the potential lost revenue, like other taxes - 30%/70%/100%.

ijaccounting

I am not quite sure if the potential lost revenue is applicable in this case, the lost revenue more to do with missing the deadline for chargability or notification of tax when you have a chargeable event.
Here you have been late on payment of tax and penalty of late payment is in FA 2009 Schedule 56 which is calculated from the due date till its paid.
> 30 days 5%
> 5 months an additional 5%
>11 months and additional 5%

Bluewednesday

The penalty would be mitigated by the client notifying the revenue rather than waiting for the revenue to find it, also cooperation and the fact that its just a mistake may be enough of a case to ask for it to be suspended.

If the revenue find it the suspension option would be lost, plus the penalty would be higher