The Social Security (Contributions) (Amendment No. 3) Regulations 2009

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Social Security (Contributions) Regulations 2001 (“the SSCR 2001”). The amendments fall into three broad groups: (i) the introduction of a revised penalty regime, (ii) amendments consequential upon the introduction of new Revenue and Customs powers in relation to inspection and to production of documents and (iii) the relaxation of conditions attaching to the relief for health screenings and medical check-ups provided by employers.

Regulation 3, 5 and 6 are about penalties. Regulation 6 inserts new regulations 87A to 87G in the SSCR 2001. Regulation 3 introduces definitions of “HMRC” and “the tribunal” (and regulation 8(2) removes the existing definition of “HMRC”, which applies only for the purposes of Schedule 4) and regulation 5 confines the existing regulation 87 and the associated penalty to situations arising on or before 5th April 2009.

The new regulation 87A makes provision for the requirements to notify the commencement or cessation of payment of Class 2 and Class 3 National Insurance contributions. Regulation 87 provides for a penalty for failure to notify liability for Class 2 contributions. Regulations 87C and 87D are about reductions where the failure to notify is disclosed to HMRC. Regulation 87E makes further provision about reductions. Regulation 87F requires HMRC to serve a notice. Regulation 87G prevents liability to a penalty where there is a criminal conviction.

Regulations 4 and (most of) 8 are about inspection and the production of documents. New Revenue and Customs powers of inspection and to require the production of documents were introduced by Schedule 36 to the Finance Act 2008.

Regulation 8 substitutes new paragraphs 26 and 26A for existing paragraph 26 of Schedule 4 to the SSCR 2001. New paragraph 26 is substantively the same as existing 26(6), (7) and (8), which is about employers’ duty to keep records. These records will constitute “statutory records”, so Schedule 36 to the Finance Act 2008 will provide the power to require their production and to inspect. New paragraph 26A is substantively the same as existing paragraph 26(4) and (5), which is about officers’ powers to issue certificates about employers’ liabilities, but statutory references are updated. The opportunity is taken to modernise the style of both sets of provisions. Regulation 4 makes consequential amendments required as a result of the changes made by regulation 8.

Regulation 7 is about health screenings and medical check-ups. Part 5 of Schedule 3 to the SSCR 2001 provides for certain non-cash vouchers to be disregarded as payments in kind for the purposes of National Insurance contributions. Paragraph 9 of Part 5 disregards non-cash vouchers which can be used only to obtain a health screening or a medical check-up of a kind which is exempt from a charge to income tax by virtue of regulation 7 of the Income Tax (Exemption of Minor Benefits) Regulations 2002 (exemption in respect of the provision of health screening and medical check-ups).

For tax years 2009-10 onwards it is proposed that the income tax exemption for health screenings and medical check-ups will no longer be in the 2002 Regulations, but in section 320B of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”), which will be inserted by the Finance Act 2009. It therefore becomes necessary to draft the disregard in Part 5 of Schedule 3 by reference to provision made in ITEPA 2003.

The exemption as expected to be inserted by the Finance Act 2009 is wider than that presently provided for by the 2002 Regulations, in that it will not be conditional on the benefit being made available to the employer’s employees generally on similar terms. The wider form of the exemption is to be applied now for the purposes of the SSCR 2001. Paragraph (2) of regulation 7 of these regulations provides for the condition to be disregarded during the period for which the tax exemption is still provided by regulations under ITEPA 2003 (i.e. regulation 7 of the 2002 Regulations) and not yet by that Act itself.

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private and voluntary sectors is foreseen.

The impact on the costs of business and voluntary sector of the revision to the Class 2 National Insurance contributions penalty was included in the wider full impact assessment entitled “The Impact Assessment of Penalties Reform: The Next Stage” published by HM Revenue and Customs on 27 March 2008 and is available on their website at http://www.hmrc.gov.uk/ria/ or from the Ministerial Correspondence Unit, HM Revenue and Customs, Yorke House, Castle Meadow, Nottingham NG2 1AB. A copy of the full impact assessment is annexed to the Explanatory Memorandum which is available alongside these Regulations on the OPSI website.