HMRC have published information inviting refund applications for Class 1A National Insurance Contributions (NICs) paid in respect of any tax year prior to 2008–2009 on the benefit of living accommodation which qualifies for exemption; more specifically certain overseas holiday homes purchased through a company.

The Finance Act 2008 introduced new provisions to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA): sections 100A and 100B. These provisions effectively provide an exemption from the living accommodation tax charge where living accommodation outside the UK is provided by a company for a director or other officer of the company (D) or a member of D’s family or household where all of the following apply:

• the company is wholly owned by D or D and other individuals (and no interest in the company is partnership property)
• the company’s main or only asset is a relevant interest in the property
• its only activities are ones that are incidental to its ownership of that interest

The new legislation was treated as having always had effect. In other words, the new legislation meant that since the coming into force of these provisions in the Finance Act 2008 a charge to income tax on the benefit provided through a qualifying overseas holiday home has never existed. As a consequence any liability to Class 1A NICs, which was due on an amount equivalent to the general earnings charge in ITEPA, was also removed from 21 July 2008.

At that time HMRC advised that refunds of tax could be claimed on the basis that the living accommodation tax charge was never intended to apply in these circumstances and the new legislation is treated as always having had effect.

However, the same wasn’t the case for Class 1A NICs (employer only). In the case of overseas holiday homes, it remained the case that for the years prior to the enactment of Finance Act 2008, Class 1A NICs remained due on the benefit in kind chargeable to Income Tax.

HMRC published Regulations in 2011 aligning the NICs position with that for Income Tax. This means that it is now possible to claim a refund of Class 1A NICs in the same way as it was possible for Income Tax. A refund of Class 1A NICs can be claimed where contributions have been paid and an officer of HMRC is satisfied that the contribution was paid on the same amount treated as earnings that are now exempt under the relevant legislation in ITEPA.

More information on how to claim a refund and the time limit involved is available in the guide.