SCHEDULE 4 PROVISIONS DERIVED FROM THE INCOME TAX ACTS AND THE INCOME TAX (EMPLOYMENTS) REGULATIONS 1993
PART II DEDUCTION OF EARNINGS-RELATED CONTRIBUTIONS
Deduction of earnings-related contributions6
1
Every employer, on making during any year to any employee any payment of emoluments in respect of which earnings-related contributions are payable, or are treated as payable, or on making any payment of statutory maternity pay—
a
shall, if he has not already done so, prepare, or in the case of an employee to whom regulation 20 of the Income Tax Regulations (employee on fixed pay) applies, maintain a deductions working sheet for that employee, and
b
may deduct earnings-related contributions in accordance with this Schedule.
2
Subject to sub-paragraph (3), an employer shall not be entitled to recover any earnings-related contributions paid or to be paid by him on behalf of any employee otherwise than by deduction in accordance with this Schedule.
3
Sub-paragraph (2) does not apply to secondary Class 1 contributions in respect of which an election has been made jointly by the secondary contributor and the employed earner for the purposes of paragraph 3B(1) of Schedule 1 to the Act (election in respect of transfer of secondary contribution liability on share option gains) F1 if the election provides for the collection of the amount in respect of which liability is transferred.
Calculation of deduction7
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) F2;
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) F3; 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 F4 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 F5.
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 F6 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.
Records where liability transferred from secondary contributor to employed earner: share option gains8
1
Where an election has been made for the purposes of paragraphs 3B(1) of Schedule 1 to the Act (elections about transfer of liability for secondary contributions in respect of share option gains), the secondary contributor shall maintain records containing—
a
a copy of any such election;
b
a copy of the notice of approval issued by the Board under paragraph 3B(1)(b) of that Schedule; and
c
the information set out—
i
in sub-paragraph (2) in respect of the company in respect of whose shares the share option to which the election relates is to be exercisable;
ii
in sub-paragraph (3) in respect of the employed earner.
2
The information referred to in sub-paragraph (1)(c)(i) is the name and address of the company.
3
The information referred to in sub-paragraph (1)(c)(ii) is—
a
the name of the employed earner; and
b
the national insurance number allocated to the employed earner.
Certificate of contributions paid9
1
Where the employer is required to give the employee a certificate in accordance with regulation 39 of the Income Tax Regulations (certificate of tax deducted), the employer shall enter on the certificate, in respect of the year to which the certificate relates—
a
the amount of any earnings up to and including the current lower earnings limit where earnings equal or exceed that figure;
b
the amount of any earnings in respect of which primary Class 1 contributions were, by virtue of section 6A of the Act F7, treated as having been paid, which exceed the current lower earnings limit but do not exceed the current primary threshold, other than earnings from non-contracted-out employment in respect of which primary Class 1 contributions were, by virtue of that section and regulation 127, treated as having been paid at the reduced rate;
c
the amount of any earnings in respect of which primary Class 1 contributions were payable which exceed the current primary threshold but do not exceed the current upper earnings limit, other than earnings from non-contracted-out employment in respect of which primary Class 1 contributions were payable at the reduced rate;
d
the amount of the earnings, if any, recorded under paragraphs (b) and (c), above the current lower earnings limit, in respect of which primary Class 1 contributions were payable or, where section 6A of the Act and regulation 127 applies, were treated as having been paid, at the reduced rate;
e
the amount of primary Class 1 contributions paid by the employee;
and shall enter the amounts under head (e) under the appropriate category letter indicated by the Board.
2
Where the employer is not required to give the employee a certificate in accordance with regulation 39 of the Income Tax Regulations, because no tax has been deducted from the employee’s emoluments during the year concerned, but the employee has paid primary Class 1 contributions in that year, the employer shall nevertheless give the employee such a certificate showing the information referred to in sub-paragraph (1).