National Insurance Contributions Bill 2005 - Frequently Asked Questions

 

Why is HMRC backdating NICs liability?

A At the time of Pre Budget Report 2004 the Paymaster General, Dawn Primarolo, made a statement to the House of Commons. The statement outlined how, despite the best efforts of successive Governments, it was continually being presented with ever more complex and contrived arrangements designed to avoid income tax and National Insurance on the rewards from employment. The Paymaster General made it clear that the objective of the Government was now to close down this activity permanently, and where necessary to backdate tax and NICs liability that was avoided to the date of the announcement.

Why is the Bill necessary?

It is an essential element in the Governments intention to stop this avoidance activity permanently. The Bill builds on the statement and the anti avoidance provisions introduced in Finance Act 2005 to ensure there is a serious and credible deterrent against future avoidance activity. It should secure total tax and NICs yield of £200m in 2004-05 and £500m per annum thereafter for essential public services.

Currently, a NICs liability can only be charged from the date NICs regulations are made (except in limited circumstances where the regulations can be backdated to the beginning of the tax year). This is in contrast to tax where liability can, if the legislation so provides, be applied back to the date of an announcement.

The Bill is necessary because unlike income tax, there is no annual equivalent of the Finance Bill for NICs.

This Bill will ensure that the Government can deal with any arrangements that emerge in future that are designed to frustrate its intention that employers and employees should pay the proper amount of tax and NICs on the rewards of employment.

Where can I see the Paymaster General’s statement dated 2 December 2004?

A. The Paymaster General’s statement on Finance Bill Measures is available at HM Treasury (PDF 596K).

When will the power in the Bill to backdate a NICs charge first be used?

A. This power will be used in the first instance to make regulations to reflect the employment-related securities anti-avoidance provisions included in Schedule 2 to the Finance (No.2) Act 2005, which received Royal Assent in July 2005 but which took effect from 2 December 2004.

What safeguards are there to ensure that provisions in the Bill comply with Human Rights legislation?

  • The Government has a duty under Human Rights legislation to ensure that it does not act incompatibly with the European Convention on Human Rights in making regulations under this Bill.
  • The power to make anti-avoidance regulations is restricted to reflecting employment remuneration measures in tax legislation (normally Finance Acts) and will only be used to reflect tax anti-avoidance measures.
  • The Bill also includes a prohibition that where, as part of a package of anti-avoidance measures, there is exceptionally a reduction of NICs liability for past periods, accrued benefit entitlement will not be affected.
  • To ensure that there is adequate Parliamentary scrutiny when regulations are made, such regulations will be subject to the Affirmative Resolution procedure.

Will there be interest and penalties charged on the NICs due on past avoidance payments made to employees?

A. No, not if you submit the supplementary return and pay within the new time limits that will apply in these circumstances and be provided for by new regulations. The due dates for such returns and payments will not be before the date any regulations resulting in new backdated liabilities are made.

When will the NICs disclosure rules come into force?

A. Regulations will apply to NICs, with some modifications, the income tax disclosure regime. The Regulations will specify a date from which NICs schemes have to be disclosed.

What are the income tax disclosure rules?

A. The tax regime requires promoters, and in some cases users, to disclose information to HMRC about certain schemes that might be expected to provide an income tax advantage as one of the main benefits of using the scheme. With effect from 1 August 2006 the regime will apply to any such scheme falling within any one of seven descriptions (hallmarks). Four "generic" hallmarks target new and innovative schemes. One hallmark targets standardised tax products. Two hallmarks target specific risk areas - loss schemes and leasing. The generic hallmarks and the standardised tax products hallmark are the hallmarks relevant to NICs.

Where can I see a copy of the Regulatory Impact Assessment?

Copies of the Regulatory Impact Assessment are available: or you can request a copy from:

Raj Nayyar
HMRC
Room 1E
100 Parliament Street
London SW1A 2BQ
Tel: 020 7147 2521

When will the Bill receive Royal Assent?

A. The Bill is subject to the approval of Parliament and it will receive Royal Assent on completing its passage through the parliamentary process. We can confirm that the Bill was introduced into the House of Commons on 11 October 2005 and we will update this website as the Bill progresses through Parliament.

When will the draft regulations be published?

A. The draft regulations will be published, subject to ministerial approval, a minimum of 12 weeks before they are made.

What is a Joint NIC Election or Agreement?

A Employers and employees can jointly elect or agree to transfer any future potential secondary NICs liability, due on certain employment income from shares and securities acquired by employees, from their employer to the employee. This facility was introduced in 2000 to help employers deal with the problem of their unpredictable NICs liability due on gains made by employees from share options. Provisions within the National Insurance Contributions and Statutory Payments Act 2004 extended this facility to include employment income derived from restricted securities and convertible securities. See Transferring Employers (secondary) National Insurance contributions (NICs) to Employees - Agreements and Joint NICs Elections for further information.

How do I ensure that my Joint NICs Election or Agreement remains valid?

A. Clauses 5 and 6 ensure that Joint NIC Elections and Agreements can only be used for their intended purpose which is to help employers deal with unpredictable secondary NICs liabilities due on certain forms of employment related securities. The clauses will specifically prevent the use of these arrangements by employers who seek to recover from their employees any NICs liability applied on past payments by regulations made under powers being introduced by this Bill.

Where can I get further information?

A The Bill and the Explanatory Notes are available on the Parliamentary website. The Press Release announcing the Bill is available on GNN-COI website:

Can I send comments on the Bill?

A. Yes, comments can be sent to:

Kevin Rice
HMRC
Room 1E
100 Parliament Street
London SW1A 2BQ

e-mail: Kevin Rice

Is there a deadline for submitting comments on the draft regulations?

A. Yes. The deadline is 9 November 2006.