HVAC staff are missing out a larger pay packet because firms are failing to claim National Insurance exemption for holiday pay.
The NIC exemption for the construction sector, allows holiday pay to be given free of employers’ and employees’ National Insurance contributions.

The tax benefit can result in a saving of 12.8% of holiday pay cost to the employer and 11% to the employee, depending on earnings. Thus equates to a saving to employers of more than £200 per year per employee on average earnings of £18,000.

Last year, Chancellor Alistair Darling announced the NI exemption would be withdrawn. Those in the building services industry can benefit from the exemption for only five more years.

During this time, eligible businesses’ participating in industry holiday pay schemes, such as Welplan, can take advantage of the NI concession before it is scrapped for good in October 2012.

Bruce Kirton, chief executive of Welplan, is urging hvac businesses to claim their holiday pay tax benefit, before it disappears and is aware that many of these firms are missing out.

“Employers in the HVACR sector need to take action now to take advantage of this valuable tax benefit while it is still available. It can help to lower their employee costs and will provide their workforce with more take-home pay”.

The Treasury has introduced a narrower definition of businesses and employees that are eligible to take advantage of the exemption, so some existing scheme participants will find their operations or certain groups of employees no longer qualify to get the NI concession.

For an employer to be eligible, the business must be engaged in ‘construction operations’ as defined in section 74 of the Finance Act 2004.

This refers to any company that undertakes the ‘installation in any building or structure of systems of heating, lighting, air conditioning, ventilating, power supply, drainage, sanitation water supply or fire protection’. This definition covers all building services installations and includes firms that also undertake service and maintenance work, regardless of the ratio between the two activities.

For employees, they must be ‘personally engaged’ in building services operations at the time the holiday entitlement is accrued. This definition excludes support staff, including drivers, store-people, and technical, clerical and administrative personnel and so this group of people are no longer eligible and NI contributions from both employer and employee for holiday pay have already begun.

Welplan, a subsidiary of the Heating and Ventilating Contractors’ Association, operates two government-approved holiday pay schemes for the HVACR industry. Within centrally managed schemes, employers purchase Holiday Pay Credits that provide the funds for holiday pay, this is then paid to the employee without National Insurance being deducted. Participation in the Welplan holiday pay schemes is free.

The NIC exemption for holiday pay was introduced in the 1960s to cope with the frequent movement of construction workers, so that employers were not liable for the holiday pay of an employee who had only been on the books for a short while and who might soon leave the firm.

Although aimed at the construction industry, over recent years it became increasingly common for employers in other industries, such as retail and financial services, to adopt the legislation, reducing the Treasury’s income from NI contributions by about £20 million each year.

To find out whether you are eligible to benefit from the NI tax concession and how you can claim it before it disappears, contact Welplan