The Social Security (Contributions) Regulations 2001

Calculation of deduction

7.—(1) Subject to sub-paragraph (2), on making any payment of emoluments to the employee, the employer may deduct from those emoluments the amount of the earnings-related contributions based on those emoluments thereon which the employee is liable to pay under section 6(4) of the Act.

(2) Where two or more payments of emoluments fall to be aggregated, the employer may deduct the amount of the earnings-related contributions based on those emoluments, which are payable by the employee, either wholly from one such payment or partly from one and partly from the other or any one or more of the others.

(3) If the employer, on making any payment of emoluments to an employee, does not deduct from those emoluments the full amount of earnings-related contributions which by virtue of this Schedule he is entitled to deduct, he may, subject to sub-paragraphs (4) and (5), recover the amount so under-deducted by deduction from any subsequent payment of emoluments to that employee during the same year.

(4) Sub-paragraph (3) applies only where—

(a) the under-deduction occurred by reason of an error made by the employer in good faith;

(b) the emoluments in respect of which the under-deduction occurred are treated as earnings by virtue of regulations made under section 112 of the Act (certain sums to be earnings)(1);

(c) the under-deduction occurred as a result of the cancellation, variation or surrender of the contracting-out certificate issued in respect of the employment in respect of which the payment of emoluments is made; or

(d) the emoluments in respect of which the under-deduction occurred are, by virtue of regulation 23, not paid through the secondary contributor in relation to the employment.

(5) For the purposes of sub-paragraphs (3), (4), (8) and (11)—

(a) the amount which by virtue of those sub-paragraphs may be deducted from any payment, or from any payments which fall to be aggregated, shall be an amount in addition to, but not in excess of, the amount deductible from those payments under the other provisions of this Schedule; and

(b) for the purposes of Part III of this Schedule an additional amount which may be deducted by virtue of those sub-paragraphs shall be treated as an amount deductible under this Schedule only in so far as the amount of the corresponding under-deduction has not been so treated.

(6) Sub-paragraph (8) applies where an employer makes a payment consisting either soley of non-monetary earnings, or a combination of monetary and non-monetary earnings, to—

(a) an employee;

(b) an ex-employee,

and at the time of the payment of those earnings there are no, or insufficient, monetary earnings from which the employer could deduct the amount of earnings-related contributions which the employee or ex-employee is liable to pay under section 6(4)(a) of the Act.

(7) In sub-paragraph (6)(b) “ex-employee” means a person who—

(a) ceases to be employed by the employer in a particular year (“the cessation year”); and

(b) receives such earnings from the employer after the cessation of employment but in the cessation year.

(8) Where, in the circumstances specified in sub-paragraph (6), the employer does not deduct from the earnings referred to in that sub-paragraph the full amount of earnings-related contributions which by virtue of this Schedule he is entitled to deduct, he may, subject to sub-paragraph (5), recover the amount so under-deducted by deduction from any subsequent payment of monetary earnings to that employee, or ex-employee (as the case may be) during the same year.

(9) Sub-paragraph (11) applies if—

(a) a person (“the ex-employee”) ceases in a particular tax year (“the cessation year”) to be employed by a particular employer (“the employer”); and

(b) the ex-employee receives from the employer in the cessation year, after the cessation of employment, earnings in the form of—

(i) a beneficial interest in shares,

(ii) a conditional interest in shares or a beneficial interest in convertible shares treated as earnings under regulation 22(3),

(iii) any gain on which the ex-employee is chargeable to tax by virtue of section 135 of the Taxes Act 1988 (gains by directors and employees from share options)(2); and

(c) at the time of the payment of those earnings there are no monetary earnings, or insufficient monetary earnings, from which the employer could deduct the amount of earnings-related contributions which the employee is liable to pay under section 6(4)(a) of the Act.

(10) For the purposes of sub-paragraph (9)—

“conditional shares” means shares within the meaning given for the purposes of sections 140A and 140B of the Taxes Act in section 140C of that Act(3) and, by virtue of section 140A(9) of that Act, includes securities issued by a company; and

“convertible shares” means shares which are convertible within the meaning of section 140D of the Taxes Act(4).

(11) Where, in the circumstances specified in sub-paragraph (9), the employer has not deducted, from the earnings referred to in sub-paragraph (9)(b), the full amount of earnings-related contributions which by virtue of this Schedule he is entitled to deduct, he may, without prejudice to sub-paragraph (8) but subject to sub-paragraph (12)(b), recover the amount so under-deducted by deduction from the proceeds of sale of some, or all, of—

(a) the shares referred to in of sub-paragraph 9(b)(i) and (ii); or

(b) the shares which form the subject matter of the option referred to in sub-paragraph (9)(b)(iii).

(12) For the purposes of sub-paragraph (11)—

(a) the whole of the amount under-deducted may be recovered from the proceeds of sale of some, or all, of the shares referred to in that sub-paragraph; and

(b) the employee’s prior written consent to that sale and the recovery of all or part of the under-deduction from the proceeds thereof, shall be required.

(13) Subject to sub-paragraph (14), the employer shall record on the deductions working sheet for that employee the name and national insurance number of the employee, the year to which the working sheet relates, the appropriate category letter in relation to the employee (being the appropriate category letter indicated by the Board) and, in so far as relevant to that category letter, the following particulars regarding every payment of emoluments which he makes to the employee namely—

(a) the date of payment;

(b) the amount of—

(i) earnings up to and including the current lower earnings limit where earnings equal or exceed that figure,

(ii) earnings which exceed the current lower earnings limit but do not exceed the current primary threshold and the current secondary threshold,

(iii) earnings which exceed the current primary threshold and the current secondary threshold but do not exceed the current upper earnings limit,

(iv) the primary Class 1 contributions payable on the amounts recorded under heads (i) to (iii) together with the secondary Class 1 contributions payable on all earnings in respect of which such contributions are payable; but this head shall not apply to such contributions payable on emoluments under sub-paragraph (3);

(v) the primary Class 1 contributions included in the amount recorded under head (iv); and

(vi) any statutory maternity pay;

(c) when the employment is contracted-out employment the amount of—

(i) any reduction calculated in accordance with section 41(1) and (1A) or 42A(1) and (2) of the Pensions Act(5) on the amount of a Class 1 contribution in respect of earnings recorded under paragraph (b)(ii) which is available for set-off against (and does not exceed) the amount recorded under paragraph (b)(v), and

(ii) any reduction calculated in accordance with sections 41(1) to (1B) or 42A(1) to (2A) of the Pensions Act on the amount of a secondary Class 1 contribution in respect of earnings recorded under paragraph (b)(ii) aggregated with any balance of the reduction in respect of earnings referred to in head (i) which exceeds the amount which may be set off as mentioned in that head.

(14) Where 2 or more payments of emoluments fall to be aggregated, the employer, instead of recording under heads (iv) and (v) of sub-paragraph (13)(b) separate amounts in respect of each such payment, shall under each head record a single amount, being the total of the contributions appropriate to the description specified in that head, in respect of the aggregated payments.

(15) When an employer pays emoluments he shall record under the name of the employee to whom he pays the emoluments—

(a) the date of payment;

(b) the amount of the emoluments, excluding any allowable superannuation contributions; and

(c) any allowable superannuation contributions;

and retain the record for a period of three years after the end of the tax year in which the emoluments were paid.

(1)

Section 112 was amended by paragraph 51(4) of Schedule 1 to the Employment Rights Act 1996 (c. 18) and paragraph 21 of Schedule 3 to the Transfer Act.

(2)

Section 135 was amended by section 49(1) of the Finance Act 1998 (c. 36).

(3)

Sections 140A to 140C were inserted by section 50(1) of the Finance Act 1998.

(4)

Section 140D was inserted by section 51(1) of the Finance Act 1998.

(5)

Section 41 was substituted by paragraph 127 of Schedule 7 to the Social Security Act 1998 (c. 14) and amended by paragraph 6 of Schedule 9 to the Welfare Reform Act. Section 42A was inserted by section 137(5) of the Pensions Act 1995 (c. 26); relevant amendments were made by paragraph 128 of Schedule 7 to the Social Security Act 1998 and paragraph 7 of Schedule 9 to the Welfare Reform Act.