NIC holidays

In the June 2010 Budget, the government announced that it would launch a scheme to promote the creation of new businesses in the parts of the UK that are most reliant on public sector employment.

Is my business eligible?

• The scheme will be available to businesses started between 22 June 2010 and 5 September 2013 and will apply to earnings paid by participating businesses on or after 6 September 2010.
• The scheme is only available to new businesses, which may be incorporated businesses, sole traders or partnerships.
• The principal place of business of your company must not be in an "excluded region". You must be able to show that your business' "principal place of business" is outside of an excluded region. If you are unable to demonstrate this, the scheme will not apply.

Excluded regions

For the scheme to apply, the principal place of business must not be in an "excluded region", being any of the following:

• Greater London.
• The Eastern region, comprising of:
  • Bedford, Cambridgeshire, Central Bedfordshire, Essex, Hertfordshire, Norfolk, Suffolk.
  • The non-metropolitan districts of Luton, Peterborough, Southend-on-Sea and Thurrock.
• The South Eastern region, comprising of:
  • Buckinghamshire, East Sussex, Hampshire, the Isle of Wight, Kent, Oxfordshire, Surrey and West Sussex.
  • The non-metropolitan districts of Bracknell Forest, Brighton and Hove, Medway, Milton Keynes, Portsmouth, Reading, Slough, Southampton, West Berkshire, Windsor and Maidenhead and Wokingham.

In what circumstances will NIC holidays be available?

• NIC holidays will be available for the first ten qualifying employees that your business employs in its first year. This limit includes directors, part-time employees, casual employees and employees whose earnings are below the NICs threshold. It also includes employees who leave your business during the scheme period.
• Your business' first year commences when it starts, or if earlier, when it first employs an employee.
• The holiday period for each employee begins when the employee is first employed or 6 September 2010 (whichever is the later). It ends one year later or on 5 September 2013 (whichever is sooner).
• If your business is taken over or sold, the scheme will end immediately.

NIC deductions

During a holiday period your business will not be liable for Class 1 employer NICs, up to a maximum exemption of £5,000 for each employee. However, any unused amount below £5,000 in relation to any employee cannot be used in relation to another employee.

What restrictions apply to the scheme?

• If your business operates in a restricted industry sector (such as the coal sector) it will not be eligible to participate in the scheme. Details of these restricted sectors are available on the Business Link website: Employer NICs holiday – who can apply?
• The maximum amount of relief available under the scheme is £50,000 (£5,000 for each of the ten employees). However, businesses will, generally, only be entitled to a maximum of EUR200,000 EU State Aid, including relief under the scheme, in any three-year period. This figure is reduced to EUR7,500 in the agriculture sector, EUR30,000 in the fisheries and aquaculture sector, and EUR100,000 in the road transport sector.
• Your business will not be regarded as "new" if you have at any time in the six months before the start of the business carried on another business consisting of (most of) the same activities.
• Your business will not be regarded as "new" if you start a business when another person has ceased carrying on a similar business as a consequence of an agreement between yourself and that other party.

What will my business need to do to comply with the scheme?

• If you decide to take advantage of the scheme you will need to notify HMRC by completing an application form. Most businesses can apply online via the Business Link website.
• Your business will need to retain records relating to the scheme for at least three years from the date when the final deduction is (or could be) made under the scheme.
• Relief under the scheme should not be factored into your business' end-of-year tax return. Instead a separate scheme return, showing relief claimed under the scheme, should be made at the same time as the end-of-year return.

What are the next steps?

• Your business should read HMRC's guidance carefully to ensure that you understand its scope and limitations properly. You should pay attention, in particular, to the anti-avoidance provisions, your record-keeping obligations, and the limitations and administrative requirements for the scheme to comply with EU State Aid rules. For details of the guidance, visit the Business Link website: Regional employer NICs holiday for new businesses.
• The scheme is expected to become law in early 2011. This means that it will start before it actually becomes law.

More information

If you have any questions about the content of this Update, please contact Martin Hall by email mailto:martinh@cleggssolicitors.com?subject=NIC%20Holidays or call me on 0759 522 5330