EPAPP7a - Modified Class 1 and Class 1A National Insurance Contributions (NICs) for expatriate employees subject to an EP Appendix 6 agreement

EP Appendix 7A - Application for Modified NICs for Expatriate Employees from 6 April 20 __

Employer Name: ………………………………………………………


Employer Address: ………………………………………………………


                               ………………………………………………………


                               ………………………………………………………


Employer PAYE reference: ………………………………………………………

Part 1 – Scope of Agreement

  1. This application applies only to those employees who
  1. are subject to an EP Appendix 6 agreement, and

  2. are assigned to work in the United Kingdom (UK) from abroad and have an employer or host employer in the UK liable for secondary UK NICs liabilities, and

  3. pay NICs on earnings above the annual upper earnings limit for the year, or on earnings at or above the upper earnings limit in each earnings period throughout the year. If an employee joins, commences liability part way through an earnings period, or leaves the employment part way through an earnings period, that shall not invalidate the agreement, provided that
  • for employees with monthly earnings periods, contributions are calculated and paid on earnings at or above the upper earnings limit in all months other than the month in which the employee joined or left
  • for employees with an annual earnings period, National Insurance is calculated and paid on earnings to the person’s pro-rata upper earnings limit.

Part 2 – Operation of Agreement

  1. We will calculate and pay Class 1 NICs on a best estimate of those elements of the payroll that attract Class 1 NICs. At the beginning of the year, or if liability commences after the beginning of the year, in the month when NICs liability first occurs, we will prepare the best estimate. The best estimate will include all world wide earnings paid from whatever source, including where relevant, the annual salary, any cash bonus awards made to 5 April, and any non-cash benefits that attract Class 1 NICs liability.

  2. In accordance with Part 3 of this agreement, we will calculate and pay Class 1 NICs on all the estimated earnings which are subject to NICs.

  3. We will undertake an in-year review during the period December to 5 April to take account of any material changes and, in particular, to ensure that:
  1. any relevant bonuses are accounted for, and

  2. NICs due on awards from share or security options, or awards at undervalue of securities or shares, are accounted for.
  1. During the year, we will update the estimated Class 1 NICs to be paid to reflect arrivals and departures of employees who are subject to this application, and changes in the scope of these arrangements as they apply to one or more employee.

  2. We understand that where we have employees who are not ordinarily resident in the UK and who meet the conditions set out in Tax Bulletin 79 as workers for whom salary can be apportioned between UK and non-UK days, we can initially compute earnings for Class 1 NICs on the basis of an estimate of UK and non-UK workdays that we have used for income tax purposes. When we complete our NIC Settlement Return, this initial estimate must be corrected using the statutory NICs rules for non-UK days set out in Tax Bulletin 79 and the correct NICs must be paid before 31st March following the end of the tax year.

Part 3 – Payment of Estimated NICs to HM Revenue and Customs (HMRC)

  1. We undertake to pay to HMRC each month, the Class 1 NICs due on 1/12th of the estimated earnings. These payments will be made each month, by the 19th or 22nd of the following month (depending upon our payment method).

  2. Where the number of employees covered by this arrangement at any one time is 5 or fewer, we undertake to pay the Class 1 NICs due on 3/12ths of the total estimated earnings for the tax year, on or before the 19th or 22nd (depending upon the payment method) of July, October, January and April (the quarterly basis).

  3. If the number of employees covered by this agreement increases to more than 5 at any one time in the course of the year, and is likely to remain at the higher level, we will make the payments of Class 1 NICs by the 19th or 22nd of each month, from the start of the following year. If the number of employees covered by this agreement at any one time reduces to five or fewer in the course of the year and is likely to remain at the lower level, we will make payments of Class 1 NICs on the quarterly basis, from the start of the following year.

Part 4 – Arrivals and Departures

  1. We will notify HMRC of our intention to include new arrivals to the UK covered by this agreement. Similarly, we will notify HMRC of our intention to exclude an employee from the agreement or in the event of the employee no longer being subject to PAYE under EP Appendix 6. We will make these notifications to HMRC in writing before the end of the relevant tax year.

Part 5 – Employer Annual Return

  1. We will submit a completed Employer Annual Return, in accordance with the P11 Deductions Working Sheets or equivalent, and send it in time to reach our HMRC office by 19 May, following the end of the tax year. Forms P60 will be given to the employees by 31 May, after the end of the tax year.

  2. We accept that due to the inherent nature of these modified arrangements, over and underpayments of Class 1 NICs may arise, compared with the amount of Class 1 NICs that would otherwise have been due if normal NICs procedures had been applied. Provided that the procedures outlined in these arrangements are followed, interest will not be charged in accordance with the NICs regulations in respect of any residual Class 1 NICs liabilities as shown by the employer’s ‘NIC Settlement Return’. However, it is accepted that interest will run on any part of the estimated NICs for a tax year due to have been paid under this agreement, which (depending upon the method of payment) reaches HMRC after 19 or 22 April following the end of the tax year.

  3. It is accepted that if the payment of estimated Class 1 NICs due on 19 or 22 April is paid late, HMRC may charge interest and penalties on that amount.

Part 6 – Class 1A NICs

  1. We understand that for individuals within the agreement we will have until 31st January following the end of the tax year in which to submit our P11D(b). By the normal statutory time of 19 July following the end of the tax year we will make a payment of Class 1A NICs based on a best estimate of Class 1A NICs due. We will calculate and pay to HMRC the correct amount of Class 1A by 31 March following the end of the tax year. However, we understand that when we make our best estimate of earnings for Class 1 NICs, it is permissible to include non-cash benefits that would statutorily attract a Class 1A charge. Where our best estimate for Class 1 NICs includes payments and benefits that attract Class 1A under the normal statutory provisions, and we have paid Class 1 NICs on using that estimate, we are not then required to pay Class 1A by the normal statutory time of 19 July. Where our best estimate of earnings for Class 1 purposes includes non-cash benefits that would normally be subject to Class 1A, we must correct this after the tax year end and pay the right amount of Class 1 and Class 1A using our NIC Settlement Return. The right amount of Class 1A must be paid by 31st March following the end of the tax year.

  2. We will submit form P11D(b) at the latest by 31st January following the end of the tax year. The P11D(b) will show the correct benefits for the tax year computed using the statutory rules. We will annotate the P11D(b) 'EP Appendix 7A’ applies.

  3. We understand that where all statements are not submitted by 31 March following the year end, penalties under Regulation 81(1) Social Security (Contributions) Regulations 2001 might arise and that interest under Regulation 76(1) Social Security (Contributions) Regulation 2001, will accrue from the original 19th July statutory date.

Part 7 - Payment of Residual Class 1 and Class 1A NICs Liability - NIC Settlement Return

  1. We accept that where additional Class 1 or Class 1A NICs are found to be due and are paid after 31 March following the end of the tax year, or errors in the NIC Settlement Return are discovered, interest and penalties will be charged in accordance with the legislation.

  2. We will set out in the NIC Settlement Return the additional earnings and benefits, and identify those chargeable to Class 1 and Class 1A NICs.

  3. Before 31 March following the end of the tax year we will carry out an exercise to establish the correct amount of Class 1 and Class 1A due on all the employee’s earnings and benefits both from the UK and abroad. We will calculate and pay any additional Class 1 NICs and /or Class 1A NICs found to be due under these arrangements by the 31 March following the end of the tax year concerned. Any additional Class 1 or Class 1A NICs will be paid over to HMRC via a ‘NIC Settlement Return’. A NIC Settlement Return should also account for any NICs due on any primary NICs paid on the employees’ behalf under these arrangements, unless already accounted for.

  4. We understand that where the employee is social security equalised, the payment of the primary NICs on the ‘best estimate’ of gross earnings will represent a payment of earnings. Therefore, earnings should be grossed up to take account of these NICs met on the employee’s behalf. Where primary NICs are met on behalf of the employee in respect of earnings included in the Settlement Return, the earnings on the return should be grossed up to take account of the primary NICs met on the employee’s behalf.

Part 8 - Overpaid Class 1 NICs

  1. We understand that if we discover that NICs have been overpaid in relation to the ‘best estimate’ we can complete the NIC Settlement Return to reflect any secondary (employers) Class 1 or Class 1A NICs overpaid. We can also claim a refund of any primary (employees) Class 1 NICs overpaid on the 'best estimate', but only where:
  1. the Class 1 NICs paid by the employer are paid as part of the equalisation process and have not been recovered from the employee’s earnings, or

  2. the Class 1 NICs have been paid by the employer and recovered from the employee and the employee mandates the repayment to the employer in writing.
  1. We understand that, in all other cases, the NIC Settlement Return must be submitted together with a covering letter asking for a refund. This will be passed to HMRC Refunds Group for processing. We understand that under this agreement, we cannot recover overpayments by deducting the amounts from future payments to HMRC or by offsetting overpayments of primary contributions in respect of one employee against contributions due in respect of another. We will not submit minus or negative P14 returns.

Part 9 - Statement

  1. We acknowledge that HMRC reserve the right to review / cancel these arrangements as a result of changes in the law, or should operational difficulties arise, or the arrangements are seen to be deficient, for example -
  • where significant and/or regular underpayments of Class 1 and Class 1A NICs have arisen in respect of one or more employees and, in the opinion of HMRC, the Class 1 and Class 1A NICs ought to have been accounted for in the calculation of the estimated Class 1 and Class 1A NICs provided for under these arrangements
  • where an employer fails to pay the Class 1 or Class 1A NICs on time and/or to ensure that returns are filed on time, such that a liability arises to pay interest and/or penalties.
  1. We accept that as a result of a decision to cancel these arrangements, HMRC will require the strict operation of the payment of Class 1 and Class 1A NICs. Similarly, we reserve the right to cancel these arrangements and adopt the strict operation of Class 1 NICs.

  2. We agree that a separate employer record will be opened with HMRC for this scheme in the name “[Company Name] (EP Appendix 7A)”.

The new employer record will comprise a reference number and a payslip booklet to enable the NIC Settlement Return referred to at Part 7 and the residual payment referred to at Part 8 to be made.

  1. Cancellation by either party will be confirmed by written notice and will be effective from the following 6 April or an earlier date, as agreed by the parties. If a date cannot be agreed, cancellation will be effective on the earlier of the aforementioned 6 April or 3 months from the date when the written notice was given.

Application made by:


Name: ……………………………………………


Capacity: ……………………………………………


Signature: ……………………………………………



On behalf of (name of employer): ……………………………………………


Date: ……………………………………………



Application agreed on behalf of HM Revenue and Customs


Name: ……………………………………………


Signature: ……………………………………………


Date: ……………………………………………









(Mar 2007)

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