Appendix 7B NIC deals need advance application; late returns rejected

Employers using the Appendix 7B modified National Insurance arrangement for staff assigned from the United Kingdom to work overseas must apply before the first tax month in which they want to operate the arrangement.GOV It is available only for employees assigned abroad for more than a complete tax year who remain liable to UK National Insurance, earn above the upper earnings limit in every earnings period, are not liable to UK tax on the employment earnings, and receive some earnings or benefits from another source.GOV

The application must be submitted before the beginning of the first tax month in which the employer wishes to operate the arrangement.GOV Acceptance is confirmed by written notice, and the agreement takes effect from the beginning of that tax monthGOV. An application submitted afterwards takes effect only from such later date as HM Revenue and Customs specifies.

The settlement return carries two new refusal rules. The employer must reconcile worldwide earnings against Full Payment Submission figures and send the NIC Settlement Return no later than 31 March following the end of the tax yearGOV. HM Revenue and Customs may reject a return that is not sent on timeGOV and will not accept returns for a tax year where no agreement was already in placeGOV. A return for a year before the agreement started will therefore fail even if the figures are correct.

Overpayment claims face the same discipline. The employer claims any excess through the settlement return with a refund application, passed to Payment Reconciliation in the National Insurance Contributions and Employer Office. Secondary (employer) overpayments are reflected in the return; primary (employee) overpayments are refundable to the employer only where the employer paid without recovery from the employee, or where the employee has mandated repayment in writing. HM Revenue and Customs will reject the return and refund application where they are not submitted accurately and within the statutory time limits for repayment of Class 1 National Insurance. Overpayments cannot be recovered by deduction from future payments or by offsetting one employee's overpayment against another's underpayment.

Monthly operation is unchanged: one-twelfth of the estimated annual Class 1 liability each month, Full Payment Submission reporting for each payment, an in-year review between 1 December and 5 April for material changes including employment-related securities events, and written notification of arrivals and departures by the end of the tax year. An employee repatriated before completing a full tax year, whose earnings become chargeable to UK income tax, leaves the arrangement from the return date.

The cancellation clause now turns on settlement-return compliance. HM Revenue and Customs may review or cancel where the law changes, operational difficulties arise, or the arrangement proves deficient, including significant or regular underpayments, failure to pay on time, or repeated failure to file settlement returns accurately and on time so that interest or penalties arise. Cancellation is confirmed by written notice and takes effect from the following 6 April, or such earlier date as agreed.

For an employee who leaves the United Kingdom part way through the year, the employer sends the P11D(b) by 6 July and pays any Class 1A National Insurance due by 19 or 22 July following the end of the tax year, depending on the payment method.

The legal basis is the earnings definitions in sections 3 and 4 and the Class 1 liability rule in section 6 of the Social Security Contributions and Benefits Act 1992, the employment-related securities provisions in sections 698 and 700 of the Income Tax (Earnings and Pensions) Act 2003, and the late-payment penalty regime in Schedule 56 to the Finance Act 2009.