1.These explanatory notes relate to the National Insurance Contributions Act 2014 which received Royal Assent on 13 March 2014. They have been prepared by HM Revenue & Customs (HMRC) in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament.
2.The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given.
3.These notes begin with a brief overview of National Insurance contributions (NICs) and the measures contained within the Act. This is followed by an outline of the structure of the Act, its territorial extent and application and commentary on the Act's sections. The final part contains information about when the provisions in the Act come into force and a table showing the Act’s passage through Parliament. Annex A contains a glossary of terms used in these notes.
4.The National Insurance Scheme was first established in 1911 and expanded in the late 1940s to provide funds for a more comprehensive and inclusive range of contributory benefits and to provide assistance with the funding for a new National Health Service.
5.Briefly, the scheme consists of a number of benefits financed by NICs payable by earners, employers and others. Employees pay NICs on their earnings, employers pay NICs on the earnings they pay to their employees and the self-employed pay NICs on their profits and gains.
6.An earner can be either an employed earner or a self-employed earner. An employed earner is a person who is gainfully employed in Great Britain or Northern Ireland either under a contract of service, or in an office (including elective office) with general earnings. A self-employed earner is a person who is gainfully employed in Great Britain or Northern Ireland otherwise than as an employed earner. Provision is made within the scheme to allow those who are not compulsorily covered to protect their entitlement to the state retirement pension and bereavement benefits by means of voluntary NICs payments.
7.NICs are divided into six classes.
Class 1 contributions, which are paid by both employees and employers on the employee’s earnings – the employee’s share is known as the primary contribution, the employer’s as the secondary contribution. Class 1 contributions are payable on all gross earnings including commissions, overtime and bonuses, on readily convertible assets given to employees and on employees’ liabilities paid by employers. Primary contributions are payable at 12% of earnings above £149 up to £797 per week and 2% of all earnings above this limit. Secondary contributions are payable at 13.8% of all earnings above £148 per week. There are arrangements for reducing the rates of both primary and secondary contributions where the employee has contracted out of the State Second Pension. Class 1 contributions are normally collected monthly by HMRC along with income tax deducted under Pay As You Earn (PAYE).
Class 1A contributions are payable annually, by employers only, on most taxable benefits in kind. Class 1A contributions are payable at a rate of 13.8%.
Class 1B contributions are payable annually by employers on items which are dealt with under a PAYE Settlement Agreement (PSA) for income tax. Class 1B contributions are payable at a rate of 13.8% on the value of the items included in the PSA and on the total tax payable by the employer under the PSA.
Class 2 contributions are paid by the self-employed at a flat rate of £2.70 per week. A self-employed person can apply to be exempted from liability where earnings are below £5,725 per year. Class 2 contributions are paid either monthly or six monthly.
Class 3 contributions are paid on a voluntary basis, at a flat rate of £13.55 per week, by people who fall outside the scope of Class 1 and Class 2 contributions.
Class 4 contributions are paid annually by the self-employed on profits that are immediately derived from a trade, profession or vocation and which are chargeable to income tax under Chapter 2 of Part 2 of the Income Tax (Trading and Other Income) Act 2005. Class 4 NICs are payable at a rate of 9% on profits between £7,755 and £41,450 and 2% on profits above £41,450.
8.At Budget 2013 the Government announced that it would introduce an “employment allowance” of up to £2,000 a year for all businesses, charities and Community Amateur Sports Clubs to offset against their liability for secondary Class 1 NICs. The Act introduces the allowance and sets out how a person qualifies for it.
9.The employment allowance will be delivered through standard payroll software and HMRC’s Real Time Information system. Employers will self-declare their eligibility through their regular payroll processes and this confirmation will ensure that up to £2,000 in any one tax year will be deducted from their secondary Class 1 NICs liability over the course of the year’s payments under PAYE.
10.In his Autumn Statement on 5 December 2013, the Chancellor of the Exchequer announced that the Government would bring forward legislation that will effectively remove the requirement for employers to pay secondary Class 1 NICs in respect of the earnings of any employee under the age of 21. The measure will apply both to new and existing employees aged under 21 with effect from 6 April 2015 and will be restricted to earnings below an amount equal to the Upper Earnings Limit (UEL) which is forecast to be £813 per week (annual equivalent £42,285) in 2015-16.
11.The Act also provides for a regulation making power, exercisable by the Treasury, to add an age group to those in respect of whom a reduced rate of secondary Class 1 NICs applies (“the age-related secondary percentage”) and to specify what that reduced rate is and to reduce (or further reduce) the age-related secondary percentage for a previously specified group.
12.The Government announced at Budget 2012 that it had accepted the recommendations of the Aaronson Report to introduce a GAAR targeted at abusive tax avoidance schemes. The GAAR was introduced by Part 5 of the Finance Act 2013.
13.The GAAR, as this Act would apply it with modifications, is designed specifically to target only those NICs arrangements which are regarded as abusive. The rules will consider whether an arrangement is abusive, by considering whether the arrangement can reasonably be regarded as a reasonable course of action. This is known as the “double reasonableness” test - and if it cannot, then any resulting NICs advantage would be counteracted by making adjustments to charge the right amount of NICs.
14.At Budget 2013 the Chancellor announced that the Government would strengthen legislation in respect of offshore employment intermediaries. The measure is, in part, intended to address avoidance schemes in the oil and gas industry involving employers of oil and gas workers (who are working on the UK Continental Shelf) that are located outside the UK. This will be addressed largely by means of using existing powers (mainly contained in section 120 of the Social Security Contributions and Benefits Act 1992 (SSCBA 1992)) and the Act supplements those powers so as to include new certification provisions. The Social Security (Contributions) (Amendment No. 2) Regulations 2014 makes provision for the secondary contributor.
15.The Act amends section 120 of the SSCBA 1992 to enable provision to be made in regulations for a system of certification where certain National Insurance obligations are fulfilled by someone on behalf of the secondary contributor.
16.Equivalent provision will be made in the Finance Act 2014 enabling regulations to provide for a similar certification scheme for PAYE obligations.
17.As announced at Budget 2013, and following a formal consultation in the Partnerships Review between May and August 2013, draft Finance Bill 2014 legislation (clause 68 and Schedule 13) was published for consultation between December 2013 and February 2014 to:
prevent the disguising of employment relationships (and consequential reduction of employment taxes and NICs) in relation to salaried members of Limited Liability Partnerships (LLPs); and
counter tax-motivated allocations of profits and losses in partnerships, not just LLPs where the partners include both individuals and non-individual partners (i.e. mixed membership partnerships), as well as tax-motivated disposals of assets through partnerships(1).
18.The Government is also setting up a new statutory mechanism for alternative investment fund managers (AIFMs) who operate as a partnership to collect tax from the partnership, rather than from the individual member, on profits allocated to that individual but subject to deferral under an EU Directive on AIFMs (2011/61/EU2). This addresses the issue arising from members having to pay tax on profits that they are unable to access as a result of the regulatory requirements without the need to turn to tax-motivated mixed membership partnership arrangements.
19.This Act only covers the associated NICs changes that relate to salaried members and AIFMs. There are no changes to NICs legislation to counter tax-motivated allocations of profits and losses in and disposal of assets through partnerships. With regard to (i) section 14 of the Act provides a regulation making power to allow the Treasury with the concurrence of the Secretary of State to reclassify certain LLP members as employed earners for NICs purposes (and employees for the purpose of the legislation governing statutory payments) when certain conditions are satisfied. The conditions will follow those set out in income tax legislation to be included in Finance Act 2014 and will broadly be that the individual member of the LLP is rewarded by a fixed salary, does not have significant influence over the affairs of the firm and carries no or little economic risk in the LLP.
20.The powers additionally allow the Treasury with the concurrence of the Secretary of State to counter-act the use of companies or other intermediary structures to avoid the impact of the measure.
21.Section 13 of the Act provides a regulation making power to modify the way in which liabilities for Class 4 NICs of partners in firms are determined, where a provision of the Income Tax Acts relating to such partners is passed or made. The power is intended to be used to address a specific issue concerning restricted access to profits earned by members of AIFM partnerships, which arises as a result of the regulatory requirements on their remuneration contained in the EU Directive. The corresponding tax legislation relating to such partnerships is to be introduced in the Finance Act 2014.
22.The Act also:
changes the definition of "employed earner" in the SSCBA 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (SSCB(NI)A 1992). The change provides that in order to be regarded as an employed earner, an office holder has to be in receipt of "earnings" as defined for NICs purposes (as opposed to “general earnings”) and gainfully employed in Great Britain;
retrospectively disregards Armed Forces early departure payments from liability for NICs for the tax years 2005-2006 to 2012-2013 inclusive;
repeals two redundant Class 4 NICs reliefs; and
corrects minor omissions and errors in the SSCB(NI)A 1992, relating to the procedure for making certain instruments; and makes clear that instruments made by the Secretary of State under the Social Security Administration (Northern Ireland) Act 1992 should be by statutory rule.
23.Sections 1 to 8 and Schedule 1 make provision for a £2,000 employment allowance for NICs.
24.Section 9 makes provision for an age-related reduction in secondary Class 1 NICs.
25.Sections 10 and 11 apply the GAAR to NICs and give the Treasury a power to make regulations for the purposes (in broad terms) of ensuring that the GAAR as it applies to NICs and the GAAR as it applies to tax are kept in line in the future.
26.Section 12 amends the power in section 120 SSCBA 1992 to allow the Treasury to make provision for, and in connection with, the issuing of certificates where payment had been made on behalf of the secondary contributor in respect of oil and gas workers on the continental shelf.
27.Section 13 provides a power to modify the way in which liabilities for Class 4 NICs of partners in firms are determined, where a provision of the Income Tax Acts relating to such partners is passed or made.
28.Section 14 will enable persons (including, in particular, LLP members) to be treated as employed in employed earner’s employment by an LLP for NICs purposes when certain conditions are satisfied. The conditions will follow those set out in income tax legislation to be introduced as part of Finance Act 2014 and will broadly be that the individual member of the LLP has no or little real economic interest or risk in the LLP and instead is rewarded by a fixed salary.
29.Sections 15 to 18 and Schedule 2 contain the four changes mentioned in paragraph 21 above.
30.Section 19 makes provision for the HMRC’s administrative expenses in relation to the provisions in this Act.
31.Section 20 defines abbreviations used in the Act.
32.Section 21 names the Act and makes provision about territorial extent.
33.The Act extends to England and Wales, Scotland and Northern Ireland. Northern Ireland has separate National Insurance legislation equivalent to that made for the rest of the UK. So, where appropriate, the Act either amends, or refers to, the equivalent Northern Ireland legislation relating to NICs.
34.Subsection (1) provides that a person qualifies for an employment allowance in a tax year if they are a secondary contributor in relation to payments of earnings to, or for the benefit of, one or more employed persons and as a result the person incurs liability to pay secondary Class 1 contributions under the SSCBA 1992 or SSCB(NI)A 1992 (or both).
35.Subsection (2) provides that a person's employment allowance for a tax year is £2,000, or if less, an amount equal to the total amount of liabilities incurred by that person which are not excluded liabilities in a tax year.
36.Subsection (3) provides that subsection (1) is subject to sections 2 and 3 and Schedule 1.
37.Subsections (4), (5) and (6) introduce sections 2, 3 and 4 and Schedule 1 to the Act.
38.Subsection (7) provides that references in this Act to the "employment allowance provisions" are to sections 1 to 4 and Schedule 1.
39.Subsection (8) provides that terms used in the employment allowance provisions which are also used in Part 1 of the SSCBA 1992 or SSCB(NI)A 1992 have the same meaning as they have in that Part.
40.Section 2 sets out when a person cannot qualify for the employment allowance and the liabilities to pay secondary Class 1 contributions that are to be excluded for the purposes of the allowance.
41.Subsection (1) provides that public sector employers (e.g. Government departments, local authorities and the National Health Service) cannot claim the employment allowance unless that employer has charitable status.
42.Subsection (2) defines "charity" as having the same meaning as given by section 18(1) of the Small Charitable Donations Act 2012; and defines "public authority" as including any person whose activities wholly or mainly involve the performance of functions (whether or not in the UK) which are of a public nature.
43.Subsection (3) excludes secondary Class 1 contributions liabilities incurred in connection with personal, family or household affairs from the employment allowance – that is a person who employs personal or domestic staff at home such as nannies, cooks, gardeners and care support workers.
44.Under certain circumstances, the NICs anti-avoidance and intermediaries legislation under section 4A SSCBA 1992 and section 4A SSCB(NI)A 1992 concerning personal service companies (commonly known as "IR35") and managed service companies imposes a NICs liability on deemed payments of employment income. Subsection (4) provides that the employment allowance is not available against the secondary Class 1 NICs arising on those deemed payments.
45.Subsection (5) provides that subsection (6) applies if a business, or part of a business, is transferred to a person ("P") in a tax year.
46.Subsection (6) provides that liabilities are excluded liabilities if they are incurred by "P" in the tax year, in respect of an employed earner who is employed (wholly or partly) for purposes connected to the transferred business.
47.Subsection (7) provides that a business, or part of a business, is transferred to “P” for the purposes of subsection (5) if in the tax year another person “Q” is carrying on the business or part of the business and in consequence of arrangements involving “P” and “Q”, “P” begins to carry on the business or part of it on, or following, “Q” ceasing to do so.
48.Subsection (8) then defines the term "arrangements" in a non-exhaustive manner to include “any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).”
49.Subsection (9) defines "business" for the purposes of subsections (5) to (7) to include a trade, profession or vocation; a property business; any charitable or not for profit undertaking or any similar undertaking or functions of a public nature.
50.Subsection (10) provides that the employment allowance will not be available if a person qualifies for an employment allowance as a result of avoidance arrangements.
51.Subsection (11) counters any attempt to forestall an employee’s earnings in order to maximise the employer’s employment allowance, either by deferring payment of those earnings from an earlier tax year to a later tax year or by bringing them forward from a later tax year to an earlier tax year.
52.Subsection (12) defines the term "avoidance arrangements" in subsections (10) and (11) by reference to the purpose for which the arrangements were made, namely where the main purpose, or one of the main purposes, was to secure entitlement to the employment allowance.
53.Subsection (13) then defines the term “arrangements” in a non-exhaustive manner to include “any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).”
54.Subsections (1) and (3) provide that where, at the beginning of the tax year, there are two or more connected companies, which are not charities, which would each qualify for the employment allowance only one company is eligible for the employment allowance for the tax year.
55.Subsections (2) and (3) provide that where at the beginning of the tax year there are two or more connected charities which would each qualify for the employment allowance only one charity is eligible for the employment allowance for the tax year.
56.Subsection (4) provides that it is up to the companies or charities to decide which one of them will qualify for the employment allowance.
57.Subsection (5) introduces Part 1 of Schedule 1 which sets out the rules for determining if two or more companies are "connected" with one another.
58.Subsection (6) introduces Part 2 of Schedule 1 which sets out the rules for determining if two or more charities are "connected" with one another.
59.Subsection (7) defines "charity and company" for the purpose of section 3 and Schedule 1. It defines "charity" as having the same meaning as in the Small Charitable Donations Act 2012, subject to paragraph 8(5) of Schedule 1, and "company" as having the same meaning as in section 1121(1) of the Corporation Tax Act 2010 and as including an LLP.
60.Subsection (1) provides that HMRC must make arrangements to ensure that persons who qualify for the allowance receive it by making deductions from qualifying payments.
61.Subsection (2) defines "qualifying payment" as a payment in respect of any of the person’s secondary Class 1 liabilities which are not excluded liabilities under section 2.
62.Subsection (3) provides that where subsection (1) applies the person must deduct the employment allowance before any other deduction which they are permitted to make from the payment under any other legislation (e.g. deductions for statutory payments such as Statutory Maternity Pay).
63.Subsection (4) provides examples of what HMRC’s administrative arrangements may cover. In particular they may require the deduction to be made at the earliest opportunity in a tax year, provide that deductions may not be made in specified cases, place limits on the amount of deductions and provide that deductions may not be made unless the person has given notice to HMRC.
64.Subsection (5) introduces subsections (6) to (8) which, together, make provision for repayments by HMRC where, in a tax year, a person has not deducted the full amount of the employment allowance to which they are entitled, by the end of April in which the tax year ends. For example, this may occur if an employer forgets to make a claim for an employment allowance or is unaware of the availability of the employment allowance until after the relevant tax year.
65.Subsection (6) provides that in such cases, a person may apply to HMRC for a repayment, up to the outstanding amount of employment allowance, and HMRC must make the repayment.
66.Subsection (7) provides that the person’s application for a repayment must be made in accordance with HMRC’s requirements.
67.Subsection (8) provides that the application must be made before the end of the 4th tax year after the tax year in which the employment allowance was due.
68.Subsection (9) provides that the start date for repayment interest is the date on which HMRC receives the application for a repayment.
69.Subsection (10) provides for payments made under this section to be made out of the National Insurance Fund or the Northern Ireland National Insurance Fund.
70.Subsection (11) makes clear that a person may not receive the employment allowance for a tax year other than through a deduction or a repayment under this section.
71.Subsection (1) provides that the Treasury may make regulations to increase or decrease the employment allowance for a tax year; and to add to, reduce or modify the cases in which a person cannot qualify for the employment allowance or the liabilities that are excluded liabilities.
72.Subsection (2) applies section 175(3) to (5) of the SSCBA 1992 to the power to make regulations under this section.
73.Subsection (3) provides that the power in section 175(4) of the SSCBA 1992 to make incidental, supplementary, consequential or transitional provisions, as applied by subsection (2), includes the power to make such amendments to the employment allowance provisions.
74.Subsection (4) provides that regulations made under this section must be made by statutory instrument.
75.Subsection (5) provides that a statutory instrument containing, with or without other provision, regulations under subsection (1), with the exception of the power to increase the employment allowance, may not be made unless a draft has been laid before, and approved by each House of Parliament.
76.Subsection (6) provides that a statutory instrument containing regulations to increase a person’s employment allowance for a tax year and which does not have to be approved in draft under subsection (5) must be laid before Parliament after being made.
77.Subsection (7) provides that the regulations contained in a statutory instrument which is required to be laid before Parliament under subsection (6) will cease to have effect at the end of a period of 40 days after the day the statutory instrument is made, unless before the end of that period the instrument is approved by resolution of each House of Parliament.
78.Subsection (8) provides that if as a result of subsection (7) the regulations cease to have effect it does not affect anything done under the regulations, or prevent the making of new regulations to the same or similar effect.
79.Subsection (9) provides that when calculating the period of 40 days for the purposes of subsection (7), no account is to be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than 4 days.
80.Subsection (1) amends section 8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999, inserting two new paragraphs (ea) and (eb) into subsection (1) of that section. It specifies the decisions of an officer of HMRC which can be appealed. They are decisions about entitlement to, and the amount of, a deduction of the employment allowance and entitlement to, and the amount of, a repayment from HMRC.
81.Subsection (2) makes an equivalent provision for Northern Ireland inserting two new paragraphs (ea) and (eb) into Article 7(1) of the Social Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order 1999 (S.I. 1999/671).
82.Subsection (1) amends paragraph 8(1) of Schedule 1 to the SSCBA 1992 inserting new paragraph (aa). It enables regulations to be made relating to the retention of records for purposes connected with the employment allowance.
83.Subsection (2) makes an equivalent provision of Northern Ireland inserting new paragraph (aa) into paragraph 8(1) of Schedule 1 to the SSCB(NI)A 1992.
84.Subsection (3) amends paragraph 26 of Schedule 4 to the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004) inserting two new sub-paragraphs (4A) and (4B). It provides for the retention of documents or records relating to the employer’s qualification for the employment allowance, or the calculation of any amount that has been, or could be deducted, or paid on account of the employment allowance.
85.Subsection (4) provides that the amendment made by subsection (3) is to be treated as being made by the Treasury using the powers conferred by paragraphs 8(1)(aa) of Schedule 1 to the SSCBA 1992 (as inserted by subsection (1)) and paragraph 8(1)(aa) of Schedule 1 to the SSCB(NI)A 1992 (as inserted by subsection (2)).
86.Subsection (5) amends section 110ZA of the Social Security Administration Act 1992 so the information and inspection powers in Schedule 36 to the Finance Act 2008 apply for the purposes of checking the employment allowance.
87.Subsection (6) makes an equivalent amendment for Northern Ireland amending section 104ZA of the Social Security Administration (Northern Ireland) Act 1992.
88.Section 8 provides that the sections 1 to 7 and Schedule 1, which all relate to the employment allowance, will come into force on 6 April 2014.
89.Part 1 of Schedule 1 contains rules for determining if companies are connected for the purposes of section 3(1).
90.Paragraph 2 provides the basic rule for the definition of "connected" companies. Two companies are connected with one another if (a) one of the two has control of the other, or (b) both are under the control of the same person or persons. Control has the same meaning as in Part 10 of the Corporation Tax Act 2010 (CTA 2010) (see sections 450 and 451 of CTA 2010). An LLP is to be treated as a company for the purposes of Part 10 of the CTA 2010. For the purposes of an LLP the test in section 450 of the CTA is modified so that control is where the other company possesses, or is entitled to acquire, rights to a share of more than half the assets, or more than half the income, of the LLP.
91.Paragraph 3(1) applies for the purposes of determining if two companies are connected to one another if the relationship between the companies is not one of "substantial commercial interdependence". Paragraph 3(2) disapplies the provision in section 451(4) and (5) of the Corporation Tax Act 2010 which attribute rights and powers over a company to a person or to their associates. Paragraph 3(3) explains the factors to be taken into account when determining whether two companies have a relationship of "substantial commercial interdependence". These are the degree to which the companies are "financially interdependent", "economically interdependent" and "organisationally interdependent".
92.Paragraph 4 provides that for the purposes of determining if a company is under the control of another, fixed-rate preference shares held by a company are ignored if the company holding them is not a close company, takes no part in the management or conduct of the company and subscribed for the shares in the ordinary course of business which included the provision of finance.
93.Paragraph 5 provides that some loan creditors are to be ignored in determining whether one company controls another company.
94.Paragraph 6 provides that where two companies ("A" and "B") are under the control of the same person by virtue of rights or powers (or both) held in trust by that person and there is no other connection between A and B those rights and powers are to be ignored when determining whether A and B are connected.
95.Paragraph 7 provides that if company ("A") is connected with another company ("B") and B is connected with another company ("C") then A and C are also connected with one another (if that would not otherwise be the case).
96.Part 2 of Schedule 1 contains rules for determining if charities are connected for the purposes of section 3(2).
97.Paragraph 8 sets out that two charities are connected to one another if they are connected in accordance with section 993 of the Income Tax Act 2007 (meaning of connected persons) and their purposes and activities are the same or substantially similar.
98.It also sets out that a charity which is a trust is to be treated as if it were a company for the purposes of section 993 of ITA 2007. Sub-paragraph (2) provides a definition of control that is to be applied to a charity that is a trust. The definition caters for situations where a trust is controlled by a person, for example where the person has the power to appoint trustees or power to control the way in which the trustees carry out their functions. A charity which is also a trust is also connected to a charity if at least half of the trustees are trustees of the other charity, persons who are connected with persons who are trustees of the other charity, or a combination of both and the charities’ purposes and activities are the same or substantially similar – see sub-paragraph (3).
99.Sub-paragraph (5) applies if a charity controls a company which is not a charity. The company is treated as if it were a charity for the purposes of section 3 and Part 2 of Schedule 1 to the Act, and the charity and the company are connected with each other for the purposes of section 3(2). Control has the same meaning as in Part 10 of the CTA 2010 and where the charity is a trust the trustees have control of the company.
100.Paragraph 9 provides if charity ("A") is connected with another charity ("B") and B is connected with another charity ("C") then A and C are also connected with one another (if that would not otherwise be the case).
101.Subsection (1) provides for amendments to the SSCBA 1992.
102.Subsection (2) amends section 9 (calculation of secondary Class 1 contributions) by introducing the concepts of a "relevant percentage" and the "age-related secondary percentage" alongside the secondary percentage.
103.Subsection (3) inserts a new section 9A (the age-related secondary percentage) into the SSCBA 1992.
104.Subsection (1) of new section 9A provides that where a secondary Class 1 contribution is payable, this section will apply to earnings paid in the tax week if the employed earner falls within an age group specified in column 1 of the table in subsection (3).
105.Subsection (2) of new section 9A provides that the age-related secondary percentage for the employed earner’s age group is specified in column 2 of the table in subsection (3).
106.Subsection (3) of new section 9A contains the table referred to above and provides that for employed earners under the age of 21, the age-related secondary percentage shall be 0%.
107.Subsection (4)(a) of new section 9A provides that the Treasury may make regulations to add an age group to column 1 of the table and to specify the age-related secondary percentage for that group in column 2 of the table. Under subsection (4)(b), the regulations may also reduce (or further reduce) the percentage for an age group already specified in column 1, whether for the whole age group or part of it.
108.Subsection (5) of new section 9A further provides that the percentage specified in regulations under subsection (4)(a) must be lower than the secondary percentage which is currently 13.8%.
109.Subsection (6) of new section 9A provides that a person is still to be regarded as liable for secondary Class 1 NICs even though the amount of the contribution is nil because the age-related secondary percentage is 0%. This provision removes the requirement for employers to pay secondary Class 1 NICs in respect of the earnings of employees under the age of 21 while ensuring that a technical liability for such contributions continues to arise on those earnings. As a result, the provision does not affect other legislation which relies on the existence of a secondary contributor, including the obligation to make statutory payments to employees such as Statutory Sick Pay and Statutory Maternity Pay.
110.Subsection (7) of new section 9A provides that the Treasury may make regulations to provide that, in relation to an age group specified in the table, there will be set for every tax year an “upper secondary threshold” for secondary Class 1 NICs and to specify the amount of that threshold for that year.
111.Subsection (8) of new section 9A applies the regulation-making power in section 5(4) to (6) of the SSCBA 1992 for the purposes of prescribing equivalents to the upper secondary threshold for earners paid otherwise than weekly, in the same way as they apply for the purposes of prescribing equivalents to the secondary threshold.
112.Subsection (9) of new section 9A provides that where a secondary Class 1 contribution is payable, the earner falls within an age group to whom an upper secondary threshold has been applied, and the earnings paid in the tax week exceed that upper secondary threshold (or the prescribed equivalent), the age-related secondary percentage will not apply to those earnings in so far as they exceed that threshold (or the prescribed equivalent). In that case, the secondary percentage rate will apply to that part of the earnings.
113.Subsection (10) of the new section 9A provides that references in new subsections 9A(7) to (9) to an age group are to be construed as including a part of an age group.
114.Subsection (4) inserts a reference to the “age-related secondary percentage” in section 122 (1) (interpretation of Parts 1 to 6) of the SSCBA 1992.
115.Subsection (5) amends section 176(1)(a) of the SSCBA 1992 to provide that regulations made under new section 9A(7) are subject to the affirmative procedure.
116.Subsections (6) to (10) amend the SSCB(NI)A 1992 to make equivalent provision to subsections (1) to (5) in relation to Northern Ireland.
117.Subsection (11) provides that the powers conferred on the Treasury under new section 9A and the amendments in new subsections (5) and (10) will come into force two months from the day the Act is passed.
118.Subsection (12) provides that, other than the provisions specified in subsection (11), the amendments made by the new section 9A will come into force on 6 April 2015.
119.Subsection (1) applies the GAAR in Part 5 of the Finance Act 2013 to NICs.
120.Subsection (1)(a) provides that where the GAAR refers to tax, such references include NICs.
121.Subsection (1)(b) provides that where the GAAR refers to a charge to tax it also includes a liability to pay NICs.
122.Subsection (2) modifies the list (at section 206(3) of the Finance Act 2013) of taxes to which the GAAR applies so that it includes NICs.
123.Subsection (3) includes “earnings” as defined for SSCBA 1992 and SSCB(NI)A 1992 within the examples of tax arrangements that may be abusive in section 207(4)(a) of the Finance Act 2013.
124.Subsection (4) provides that the adjustments to counteract a NICs advantage under section 209 of the Finance Act 2013 may be made by a notice given under paragraph 12 of Schedule 43 to the Finance Act 2013.
125.Subsection (5) sets out the process by which consequential relieving adjustments may be claimed for Class 4 NICs and the other classes of contributions. Such relieving adjustments may be necessary, for instance, to avoid contributors being double charged NICs because contributions have already been paid on earnings, for example if Class 4 contributions have been paid but the counteraction requires Class 1 contributions to be paid.
126.Subsection (6) provides for consequential relieving adjustments to be made in a notice given under section 210(7) of the Finance Act 2013.
127.Subsection (7) provides that the GAAR applies to arrangements entered into on or after Royal Assent.
128.Subsections (8) and (9) specify that where the arrangements under consideration form part of other arrangements entered into before Royal Assent, the other arrangements should be ignored in determining whether the tax arrangements are abusive. However, subsection (10) allows for other arrangements before Royal Assent to be taken into account as evidence that the arrangements under consideration are not abusive.
129.Subsection (11) defines “abusive”, “arrangements”, “HMRC” and “national insurance contributions”.
130.Subsection (1) provides that, where there has been a change to the GAAR that does not apply in relation to NICs (“the tax only modification”), the Treasury may make regulations to:
apply the tax only changes to NICs with or without modification;
make provision for NICs that corresponds to the tax only modification;
make consequential changes to the GAAR in relation to its effect on NICs or changes that are supplementary or incidental to the tax only modification.
131.Subsection (2) makes further provision as to the regulations that may be made under this power. The regulations can amend other legislation, make consequential, incidental, supplementary, transitional, transitory or saving provision and make different provision for different cases, purposes or classes of NICs.
132.Subsection (3) requires the regulations to be made by statutory instrument.
133.Subsection (4) provides that a statutory instrument, containing with or without other provision, regulations that amend or repeal a provision of an Act must be laid in draft before, and approved by, each House of Parliament (“affirmative resolution”). Any other statutory instrument made under this section does not have to be approved in draft and is subject to annulment by resolution of either House ("negative resolution") – see subsection (5).
134.Subsection (6) defines “general anti-abuse rule” and “national insurance contributions”.
135.Subsection (1) provides for the amendment of section 120 SSCBA 1992 (employment at sea: continental shelf operations).
136.Subsection (4) inserts new subsections (4) and (5) into section 120. New subsection (4) provides the Treasury with the power to make regulations providing for certificates to be issued by HMRC to persons who are treated as the secondary contributor in relation to the payment of earnings for continental shelf workers that:
confirm that the person's liabilities in connection to a continental shelf worker are being met by another person; and
whilst the certificate is in force relieving the secondary contributor from any liability where the payments are not met by the other person in full.
137.New subsection (5) allows the Treasury to prescribe under the regulations how people can apply for a certificate, when a certificate may, or must, be issued or cancelled, the form and content of a certificate, the effect of the certificate and the effect of cancelling a certificate.
138.Subsection (1) provides for amendments to the SSCBA 1992.
139.Subsection (2) inserts new section 18A into the SSCBA 1992.
140.Subsection (1) of new section 18A of the SSCBA 1992 allows the Treasury to make regulations under the new section if a provision of the Income Tax Acts relating to partners is passed or made, and the Treasury consider it appropriate to make regulations taking into account that tax provision. The regulations may modify the way a partner's liabilities for Class 4 contributions are determined, or otherwise modify the law relating to Class 4 contributions.
141.Subsection (2) of new section 18A defines a "firm" as having the same meaning as in the Income Tax (Trading and Other Income) Act 2005 (including an LLP in relation to which section 863(1) of that Act applies). It further provides that “partner” is to be read accordingly, and includes a former partner.
142.Subsection (3) of new section 18A provides that regulations under that section may have retrospective effect but that they may not have effect before the beginning of the tax year in which they are made.
143.Subsection (3) amends section 176(1)(a) of the SSCBA 1992 to provide that regulations made under new section 18A are subject to the affirmative procedure.
144.Subsections (4) to (6) amend the SSCB(NI)A 1992 to make equivalent provision to subsections (1) to (3) in relation to Northern Ireland.
145.Subsection (7) provides that the amendments made by this section will come into force two months from the day the Act is passed.
146.Subsection (1) and (2) insert a new section 4AA into the SSCBA 1992 that gives the Treasury, with the concurrence of the Secretary of State, the power to provide, that in prescribed circumstances a person (“E”) is to be treated as employed in employed earner’s employment by a LLP, that the LLP is to be treated as the secondary contributor in relation to E’s earnings from the LLP and that payments of a prescribed description are to be treated as earnings of E paid at prescribed times from E’s employment with the LLP.
147.New section 4AA also creates a power to modify the definition of employee and employer in Parts 11 to 12ZB so that E is an employee and the LLP is the employer for the purposes of the legislation governing statutory sick, maternity, paternity and adoption payments. The power in section 4AA is expressly not limited by section 4(4) of the LLP Act 2000 and can be exercised to make amendments to the SSCBA that the Treasury considers are necessary to assimilate the law relating to income tax and the law relating to contributions as a result of a provision of the Income Tax Acts relating to LLPs or LLP members being passed.
148.Subsection (3) inserts a new paragraph (d) to subsection (3) of section 4B of the SSCBA 1992 which makes new section 4AA a relevant power for the purposes of section 4B. The effect of this is that regulations under the power in section 4AA can have retrospective effect where they are made to reflect retrospective tax legislation.
149.Subsection (4) inserts a new subsection (11) into section 10 of the SSCBA 1992 which gives the Treasury the power to modify the law relating to Class 1A contributions in the case of an employed earner’s employment which is treated as existing by virtue of regulations made under new section 4AA.
150.Subsections (5) to (8) make equivalent amendments for Northern Ireland inserting in the SSCB(NI)A 1992 a new section 4AA, paragraph (d) to subsection (3) of section 4B and subsection (11) to section 10.
151.Subsections (1) and (2) provide that the word "general" be removed from section 2(1)(a) SSCBA 1992 and the SSCB(NI)A 1992, which currently define "employed earner" to include "a person who is gainfully employed … in an office (including an elective office) with general earnings". Section 122(1) SSCBA 1992 and 121(1) SSCB(NI)A 1992 defines "general earnings" by reference to section 7, and Chapter 1 of Part 3, of the Income Tax (Earnings and Pensions) Act 2003. The change makes clear that in order to be regarded as an employed earner, an office holder has to be in receipt of earnings as defined for NICs purposes. "Earnings" are defined in section 3(1) of both Acts to include "any remuneration or profit derived from an employment". There is no statutory definition of "remuneration" within the Acts, however, case law interpreting it has established that it includes salaries, wages and other forms of reward such as bonuses, commission and tips.
152.Subsection (3) introduces Schedule 2 which provides for consequential amendments to the SSCBA 1992, the SSCB(NI)A 1992, the Pension Schemes Act 1993 and the Pension Schemes (Northern Ireland) Act 1993 as a result of the amendments made by subsections (1) and (2).
153.Subsection (4) provides that the amendments made by the section and Schedule 2 will come into force two months from the day the Act is passed.
154.Section 16 provides for payments made under the Armed Forces Early Departure Scheme Order 2005 (S.I. 2005/437) to be disregarded for NICs purposes for the tax years 2005-2006 to 2012-13 inclusive. It does so by providing for Paragraph 10A of Part 6 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004) to have retrospective effect for those years (it already has prospective effect).
155.Subsections (1) and (2) provide for the repeal of two Class 4 NICs reliefs that are no longer required from Schedule 2 to the SSCBA 1992 and the SSCB(NI)A 1992 (levy of Class 4 contributions with income tax).
156.Subsection (3) provides that the repeal of one of the reliefs (paragraph 3(3) of Schedule 2) takes effect for the tax year after the one during which this Act is passed and for subsequent tax years. The other, in paragraph 9 of that Schedule, is to be repealed from Royal Assent.
157.Subsection (1) provides for the amendment of section 172 of the SSCB(NI)A 1992.
158.Subsection (2) corrects a reference to "subsection (9)" that should be to "subsection (10)".
159.Subsection (3) provides for the use of the negative resolution procedure when making regulations under section 117 of the SSCB(NI)A 1992 that are consequential upon section 142(7) of the Social Security Administration (Northern Ireland) Act 1992 (SSA(NI)A ). This subsection also applies the negative resolution procedure to certain consolidating regulations and to regulations which replace provisions of previous regulations with new provisions to the same effect. This brings the position in line with the equivalent provision in the SSCBA 1992.
160.Subsection (4) provides for the amendment of section 165 of the SSA(NI)A. Subsections (5) and (6) insert "the Secretary of State" into section 165(1) and (3) of the SSA(NI)A to make it clear that instruments made under the SSA(NI)A by the Secretary of State are to be made by statutory rules.
161.Subsection (7) provides that the amendments made by this section come into force two months from the day the Act is passed.
162.Subsection (1) amends section 165(5)(a) of the Social Security Administration Act 1992 by inserting "or the National Insurance Contributions Act 2013" after "adoption pay". This will enable HMRC administrative expenses incurred in relation to the Act ultimately to be met from the National Insurance Fund.
163.Subsection (2) makes an equivalent provision for Northern Ireland.
164.This section defines abbreviations used in the Act.
165.Subsection (1) provides for the Act to be known as the National Insurance Contributions Act 2014.
166.Subsection (2) provides that the Act extends to England, Wales, Scotland, and Northern Ireland, subject to subsection (3).
167.Subsection (3) provides that an amendment or repeal made by the Act has the same extent as the provision amended or repealed.
168.The provisions relating to the GAAR in sections 10 and 11, the oil and gas workers in section 12, to LLPs in section 14, to EDPs in section 16 and sections 8 and 19 to 21 will take effect from the date of Royal Assent of the Act.
169.The provisions relating to the employment allowance in sections 1 to 7 and Schedule 1 will commence on 6 April 2014.
170.The powers conferred on the Treasury in relation to the age-related secondary percentage in section 9 and section 9(5) and (10) will commence two months from the day the Act is passed. The remainder of section 9 will come into force on 6 April 2015.
171.The provisions relating to partnerships Class 4 contributions in section 13, office holders in receipt of “earnings” (section 15 and Schedule 2) and the correcting provision relating to the making of certain instruments for Northern Ireland (section 18) will commence two months from the day the Act is passed.
172.Section 17 repeals the redundant Class 4 reliefs. The repeal of the relief in paragraph 3(3) of Schedule 2 to SSCBA 1992 and SSCB(NI)A 1992 will have effect for the tax year after the one in which the Act is passed and for subsequent tax years. The repeals of paragraph 9 of that Schedule to those Acts will have effect from Royal Assent.
173.The following table sets out the dates and Hansard references for each stage of this Act’s passage through Parliament.
| Stage | Date | Hansard reference |
|---|---|---|
| House of Commons | ||
| First Reading | 14 October 2013 | Vol. 568 Col. 455 |
| Second Reading | 4 November 2013 | Vol. 570 Col. 38 |
| Public Bill Committee | 19 and 21 November 2013 | Hansard Public Bill Committee Cols. 1-16, 17-36, 37-60 and 61-86. |
| Report Stage | 10 December 2013 | Vol. 572 Col. 167 |
| Third Reading: | 10 December 2013 | Vol. 572 Col. 196 |
| House of Lords | ||
| Second Reading | 7 January 2014 | Vol.750 Col. 1490 |
| Committee | 23 January 2014 | Vol.751 Col. GC349 |
| Report Stage | 10 February 2014 | Vol.752 Col. 415 |
| Third Reading | 25 February 2014 | Vol.752 Col. 833 |
| Royal Assent - 13 March 2014 | House of Lords Hansard Vol. 752 Col. 1855 |
| House of Commons Hansard Vol. 577 Col. 455 |
| Term | Explanation |
|---|---|
| CASC | Community Amateur Sports Clubs |
| CTA 2010 | Corporation Tax Act 2010 |
| EDPs | Early departure payments |
| GAAR | General Anti-Abuse Rule |
| HMRC | HM Revenue & Customs |
| LLP | Limited Liability Partnership |
| LLPA | Limited Liability Partnerships Act 2000 |
| NICs | National Insurance contributions |
| PAYE | Pay As You Earn |
| QSP | Qualifying Service Personal |
| SSA(NI)A | Social Security Administration (Northern Ireland) Act 1992 |
| SSCBA 1992 | Social Security Contributions and Benefits Act 1992 |
| SSCB(NI)A 1992 | Social Security and Benefits (Northern Ireland) Act 1992 |
| TIIN | Tax Information and Impact Notes |
The consultation and response documents were published on a dedicated site on GOV.UK: https://www.gov.uk/government/consultations/a-review-of-two-aspects-of-the-tax-rules-on-partnerships. This site also contains detailed tax guidance and new forms for alternative investment fund managers (see the following footnote).
The Alternative Investment Fund Managers Directive (2011/61/EU) can be found on the European Commission’s website: http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32011L0061
The Financial Conduct Authority published guidance on the UK implementation of this Directive on their website: Finalised Guidance: General Guidance on the AIFM Remuneration Code” on 31 January 2014 (http://www.fca.org.uk/static/documents/finalised-guidance/fg14-02.pdf ) (see paragraphs 11-14 on p14-15 which describe the new statutory tax mechanism for AIFMs).