Commentary on Sections
Power to make regulations to create a retrospective liability for National Insurance contributions
Section 1 – Power to make provision in consequence of retrospective tax legislation: Great Britain
16.Subsection (1) provides for new sections 4B and 4C to be inserted after section 4A of the CBA 1992.
17.Subsection (1) provides for a new power at New Section 4B – Earnings: power to make retrospective provision in consequence of retrospective tax legislation. Section 4B enables the existing regulation making powers mentioned in subsection (3) of that section to be exercised with retrospective effect. The power can only be exercised where there have been retrospective tax enactments relating to those Parts of ITEPA 2003 dealing with employment income. The Treasury must also consider it appropriate to make the regulations for the purpose of reflecting in whole or in part the provision made by the retrospective tax provision. Subsection (2) provides that it also must appear to the Treasury to be expedient in consequence of the retrospective tax provision for the regulations to have retrospective effect.
18.Subsection (3) specifies the relevant NICs regulation making powers, which are to be extended to allow NICs legislation to be made that can take effect back to 2 December 2004. They are the powers in sections 3, 4(6) and 4A of the CBA 1992.
19.Subsection (4) provides for retrospective tax provisions which were made before the Act received Royal Assent (30 March 2006) to also trigger the use of the power in subsection (1).
20.Subsection (5) limits how far back the NICs changes can be backdated. It provides that the new regulation-making powers cannot take effect earlier than 2 December 2004, which was the date of the Paymaster General's announcement on tax and NICs avoidance.
21.Subsection (6) provides that regulations made retrospectively through extension of the powers at sections 3, 4(6) and 4A of the CBA 1992 will be able to affect payments of earnings made to or for the benefit of employees prior to the date when the regulations are made.
22.Subsection (7) provides for definitions of “relevant contributions legislation”, “the relevant time” and “the revised earnings ” in section 4B.
23.Subsections (8), (9) and (10) provide that, where regulations that are made by virtue of subsection (2) have the effect described in subsection (6), the contributions legislation is to be applied to the revised earnings figure and liability is to be re-determined by reference to the revised earnings or amount of those earnings as if the revised position applied at the time.
24.Subsection (11) provides that subsections (7) to (10), which provide for liability to be re-determined, are to be subject to any exceptions which are specifically provided.
25.Subsection (12) makes it clear that the new power in section 4B(2) does not affect any other power in the CBA 1992 or other enactments.
26.Subsection (13) provides for the meaning of “contributions legislation” in section 4B.
27.Subsection (1) of new section 4C – Power to make provision in consequence of provision made by or by virtue of section 4B(2) etc – provides for the Treasury to make regulations which it considers expedient for any of the purposes mentioned in subsection (2) in consequence of any provision made by or by virtue of the powers in section 4B(2). The regulations require the concurrence of the Secretary of State. Subsection (2) identifies the purposes for which it may be necessary to make regulations where earnings are re-determined. Subsection (2)(f) also allows for additional purposes to be prescribed in future by the Treasury with the concurrence of the Secretary of State.
28.Subsection (3)(a) provides for the regulations to make changes to primary and secondary legislation, including provisions which came into force on or after the day this Act received Royal Assent (30 March 2006).
29.Subsection (3)(b) provides for the regulations to apply primary and secondary legislation with or without modifications.
30.Subsection (4) provides that any regulations under section 4C(1) cannot have effect earlier than 2 December 2004, which was the date of the Paymaster General's announcement on tax and NICs avoidance.
31.Subsection (5) gives a non-exclusive list of examples of matters which may be affected by regulations under section 4C(1) having retrospective effect.
32.Subsection (6) provides that, where matters specified under subsection (5) have already been determined, regulations can be made under section 4C(1) that will allow for re-determination of these matters.
33.Subsection (7) ensures that where “the operative provisions” could remove past or future entitlement to contributory benefit, contribution-based jobseeker's allowance or statutory payments or reduce the amount of such payments those provisions are to be read with such modifications as are necessary to ensure that they do not have that effect.
34.Subsection (8) defines “the operative provisions” and “entitlement” for the purposes of subsection (7).
35.Subsection (9) ensures that other powers conferred by the CBA 1992 or any other enactment are not affected by this new power.
36.Subsection (10) provides that further amendments and revocations can be made to provisions modified by regulations under section 4C(1), and these do not need to be made under the section 4C(1) powers.
37.Subsection (11) provides the meaning of “the commencement day” “enactment”, and "statutory payment" in section 4C.
38.Subsection (2) of the section amends section 176 of the CBA 1992
39.Subsection (2)(a) inserts references to section 4B(2) and 4C into section 176(1)(a). This provides that if regulations are made using the powers under sections 4B(2) and 4C a draft of the instrument has to be laid before Parliament and approved by a resolution from both the House of Commons and the House of Lords, before the instrument is made.
40.Subsection (2)(b) inserts section 176(2A) and (2B) which provide that regulations made by virtue of section 4B(2) should be laid before Parliament within 12 months of the corresponding tax provision being passed. Where the corresponding tax provision was passed or made before Royal Assent of the Act, the regulations should be laid within 12 months of that Act being passed. Subsection (2)(b) also inserts section 176(2C), which defines some of the terms used.
Section 2 – Power to make provision in consequence of retrospective tax legislation: Northern Ireland
41.Section 2 replicates the provisions of section 1 in respect of the CB(NI)A 1992.
Section 3 – Class 1A contributions: power to make provision in consequence of retrospective tax legislation: Great Britain
42.Section 3 inserts a new section 10ZC after section 10ZB of the CBA 1992.
43.Subsection (1) of section 10ZC provides for regulations to be made if it appears to the Treasury to be expedient, for any purpose of the law relating to Class 1A contributions, to make the regulations in consequence of retrospective tax legislation which affects the amount of general earnings chargeable to income tax under the employment income Parts of ITEPA 2003. The power to make regulations also enables general provision to be made to deal with matters that may arise should such retrospective tax legislation be passed in the future. Retrospective tax provisions have an automatic effect on Class 1A liability by virtue of section 10 of the CBA 1992.
44.Subsection (2) defines "relevant retrospective tax provision".
45.Subsection (3) allows for the tax provision that triggers the use of the power in subsection (1) to have been made before or after the commencement day of this Act.
46.Subsection (4) makes it clear that the regulations can make provision modifying existing enactments (including future enactments) and applying existing enactments with or without modifications.
47.Subsection (5) provides that new regulations made under these powers cannot have retrospective effect earlier than 2 December 2004, which was the date of the Paymaster General's announcement on tax and NICs avoidance (written Ministerial Statement made on 2 December 2004 - see House of Commons Hansard Vol. 428 Col. 45 WS).
48.Subsection (6) allows for cases that have already been decided before regulations have been made under subsection (1), to be reviewed and amended where necessary.
For example, more than one employer may provide to the same employee a benefit which is chargeable to tax and which gives rise to a liability on each employer to pay a Class 1A contribution. That liability is apportioned between the employers. If a retrospective tax provision then provides for a revaluation of that benefit and alters the amount chargeable to tax in respect of it, it will be necessary to redetermine the apportionment and the amount due from each of the employers in respect of the resulting revised Class 1A liability.
49.Subsection (7)(a) prevents regulations made under subsection (1) from imposing a liability to pay a Class 1A contribution. Retrospective tax legislation which alters the amount of income tax chargeable to general earnings will normally automatically create a liability for Class 1A contributions by virtue of section 10 of the CBA 1992.
50.Subsection (7)(b) prevents regulations made under subsection (1) from increasing the amount of any Class 1A which is payable. The amount of any Class 1A will follow automatically by virtue of the retrospective tax legislation and its impact on section 10 of the CBA 1992.
51.Subsection (8)(a) ensures that the power in section 10ZC is without prejudice to any liability to pay a Class 1A contribution which arises by virtue of a relevant retrospective tax provision. Such liability will normally arise automatically under section 10 of the CBA 1992.
52.Subsection (8)(b) ensures that other powers conferred by the CBA 1992 or any other enactment are not affected by the power in section 10ZC.
53.Subsection (9) ensures that the modification of any secondary legislation by regulations made by the Treasury under section 10ZC does not prejudice any existing power that the department that made the original legislation has to amend or revoke it.
54.Subsection (10) defines “the commencement day” for the purposes of section 10ZC as the day upon which the Act received Royal Assent (30 March 2006). It also defines "enactment" for the purposes of section 10ZC as including an instrument made under an Act.
55.Section 3(2) inserts a reference to section 10ZC into subsection (1)(a) of section 176 of the CBA 1992. This provides that if regulations are made using the powers under section 10ZC a draft of the instrument has to be laid before Parliament and approved by a resolution from both the House of Commons and the House of Lords before the instrument is made.
Section 4 - Class 1A contributions: power to make provision in consequence of retrospective tax legislation: Northern Ireland
56.Section 4 replicates the provisions of section 3 in respect of the CB(NI)A 1992.
Agreements and Elections
Section 5 – Agreements and joint elections: Great Britain
57.Subsection (1) introduces changes to be made to Schedule 1 to the CBA 1992 which contains the rules on Agreements and Elections that allow the employer to recover from, or pass on to, the employee any secondary NICs liability arising on certain securities based remuneration.
58.Subsection (2) amends paragraph 3A(2A) of Schedule 1. The change prevents Agreements for the recovery of contributions by the employer from the employee (of the kind allowed under that provision) from being used to recover any secondary contributions resulting from the imposition, by virtue of new section 4B(2), of a retrospective liability to Class 1 NICs.
59.Subsection (3) amends paragraph 3B(7B) of Schedule 1. Provisions in paragraph 3B allow the employer and the employee to enter into a joint election for the transfer of secondary NICs liability arising from securities options, restricted securities and convertible securities to the employee. The change will prevent the transfer of any secondary NICs liability that is due as a result of retrospective liability to Class 1 NICs imposed by virtue of section 4B(2).
60.Subsection (4) provides that the amendments made by the section have effect in relation to agreements or elections entered into before, on or after the time the Act received Royal Assent (30 March 2006).
Section 6 – Agreements and joint elections: Northern Ireland
61.Section 6 replicates the provisions of clause 5 in respect of the CB(NI)A 1992
Disclosure of avoidance
Section 7 – Disclosure of contributions avoidance arrangements
62.Subsections (1) and (2) of the section provide for a new section 132A – Disclosure of contributions avoidance arrangements, to be inserted into the SSAA 1992.
63.Subsection (1) of section 132A provides that the Treasury may make regulations requiring, or relating to, the disclosure of information in relation to “notifiable contribution arrangements” or “notifiable contribution proposals”.
64.Subsection (2) restricts the scope of the power provided by subsection (1). The regulations can only apply in relation to NICs (with or without modification), or make provision corresponding to, those provisions in primary or secondary legislation relating to the disclosure of information in relation to income tax avoidance arrangements, including provisions that come into force on or after the day the Act received Royal Assent (30 March 2006).
65.Subsection (3) defines “notifiable contribution arrangements” and “notifiable contribution proposal”. In essence, these are arrangements, or proposals for arrangements, whose use might be expected to obtain a NICs advantage as one of the main benefits of using those arrangements.
66.Subsection (4) provides a power enabling the Treasury to amend subsection (3) by regulations if, after the passing of this Act, any of the provisions relating the disclosure of income tax avoidance arrangements are amended in such a way that the definitions in subsection (3) no longer mirror the relevant tax provisions. The scope of the power is limited to amending the definitions in subsection (3) to make provision analogous to the changes to the relevant tax provisions.
67.Subsection (5) defines some of the terms used in subsection (4).
68.Subsection (6) ensures that regulations made under section 132A cannot require any person to disclose information which is protected by legal professional privilege. This provision mirrors the equivalent provision applying to the disclosure of information in relation to income tax arrangements (section 314 of the Finance Act 2004).
69.Subsection (7) contains definitions of “advantage”, “arrangements”, “contribution” and “tax avoidance arrangements”.
70.Subsection (3) of the section inserts a reference to subsection (4) of the new section 132A of the SSAA 1992 into section 190(1) of the SSAA 1992. This provides that if regulations are made using the powers under section s132A a draft of the instrument has to be laid before Parliament and approved by a resolution from both the House of Commons and the House of Lords before the instrument is made.
71.Subsection (4) of the section ensures that the new section 132A extends to Northern Ireland as well as Great Britain.
