The Social Security (Contributions) (Amendment) (No. 2) Regulations 2016

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations make a number of consequential amendments to the Social Security (Contributions) Regulations (S.I. 2001/1004) (“the Contributions Regulations”).

Regulations 3 and 5(8) make a couple of amendments to the Contributions Regulations to take into account new provisions in the Income Tax (Earnings and Pensions) Act 2003 (c.1) (“ITEPA 2003”) inserted by the Finance Act (No.2) 2015 (c. 33). Regulation 3 amends regulation 1(2) of the Contributions Regulations to reflect the extension to the definition of business travel in section 235A of ITEPA 2003. This means that, if certain conditions are met, journeys made by a member of a relevant authority between their home and permanent workplace are treated as business travel. Schedule 3 to the Contributions Regulations provides for certain payments to be disregarded in the calculation of an individual’s earnings for the purpose of earnings-related National Insurance contributions. Regulation 5(8) adds a new paragraph 17 to Part 8 of Schedule 3, which provides that any payment which is exempt from income tax under section 295A of ITEPA 2003 will also be disregarded for these purposes. That section introduces an exemption from income tax for payments of expenses made to members of relevant authorities.

Regulations 4, 5(2), 3(a) (6), (7), and 6 make a number of consequential amendments to the Contributions Regulations to reflect the changes made to provisions relating to the taxation of employees’ expenses in ITEPA 2003 by the Finance Act 2015 (c.11) (“FA 2015”). A new chapter 7A was inserted into Part 4 of ITEPA 2003 exempting some expenses from income tax which would otherwise be deductible provided that the expenses were not provided pursuant to salary sacrifice arrangements or unapproved scale rates and that certain conditions were met. The amendments contained in this instrument ensure that the legislation concerning National Insurance contributions will mirror the income tax position.

Regulation 7 amends paragraph 21G of Schedule 4 to the Contributions Regulations to provide that paragraph 21G(2) does not apply to penalties in respect of extended failures under paragraph 6D of Schedule 55 to the Finance Act 2009 (c.10) (defined as a failure to make a return within the period of three months beginning with the day after the original filing date). The amendment provides that, where an employer is liable to a penalty for failing to file a return under regulation 67B or regulation 67D of the Income Tax (Pay As You Earn) Regulations 2003 (S.I. 2003/2682), they may also be liable to a penalty for an extended failure to file an associated return under paragraph 21A or paragraph 21D of Schedule 4 to the Contributions Regulations. The effect of this amendment is to allow Class 1 National Insurance contributions to be included in the calculation of an extended failure penalty.

Paragraphs (3)(b) to (d), and (4) of regulation 5 amend Part 8 and paragraph 3 to the Contributions Regulations to update definitions relating to travel expenses so that they will mirror the tax position following amendments to be made to ITEPA 2003 in the Finance Act 2016. In particular, regulation 5(3) amends paragraph 3 of Part 8 of Schedule 3 to the Contributions Regulations by inserting a definition of the words “ordinary commuting” and “private travel” to reflect the definition given to those words in section 338 of ITEPA 2003. Regulation 5(4) inserts new paragraphs 3ZA and 3ZB to reflect the amendments to be made to sections 339 and 339A of ITEPA 2003.

In particular, sub-paragraph (1) of new paragraph 3ZB sets out that the paragraph will apply to workers who are personally providing services through an intermediary.

Sub-paragraph (2) of new paragraph 3ZB provides that where the paragraph applies each engagement a worker undertakes will be considered a separate employment for the purposes of the travelling expenses rules in paragraphs 3 and 3ZA of Part 8 of Schedule 3 to the Contributions Regulations.

Sub-paragraphs (3) and (5) of new paragraph 3ZB provide for circumstances where the paragraph will not apply.

Sub-paragraph (7) of new paragraph 3ZB provides that in determining whether the paragraph applies where the parties have entered into arrangements in order to ensure that the paragraph does not apply, those arrangements are to be disregarded for the purposes of the paragraph.

Sub-paragraph (8) of new paragraph 3ZB provides for definitions of “arrangements”, “employment intermediary”, “engagement”, “excluded services” and “managed service company”.

Parts 2 and 3 contain consequential amendments to the Contributions Regulations following the abolition of contracted-out employment as provided for in the Pensions Schemes Act 1993 (c. 48) (“the Pensions Schemes Act”). The Contributions Regulations make provision for persons in employment that has been contracted-out of the state second pension and their employers to pay Class 1 National Insurance contributions at a reduced rate, as provided for in the Pension Schemes Act. The Pensions Act 2014 (c. 9) abolished contracted-out employment with effect from 6th April 2016. Part 2 of these Regulations makes consequential amendments to the Contributions Regulations to reflect that abolition, subject to a savings provision contained in Part 3 in relation to rights and obligations arising in connection with tax years prior to 6th April 2016.

A Tax Information and Impact Note covering regulation 3 and 5(8) was published on 10^th December 2014 alongside the draft Finance Bill 2015 and is available on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins. It remains an accurate summary of the impacts that apply to this instrument.

A Tax Information and Impact Note covering the changes made by FA 2015 to the taxation of employees’ business expenses was published on the HMRC website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins on 10th December 2014. It remains an accurate summary of the impacts that apply to this instrument.

A Tax Information and Impact Note has not been prepared for regulation 7 as this provision contains no substantive changes to tax policy.

A Tax Information and Impact Note covering the changes made by paragraphs (3)(b) to (d) and (4) of regulation 5 (employment intermediaries and relief for travel and subsistence) was published on 9th December 2015 alongside the draft Finance Bill 2016 and is available on the website at https://www.gov.uk/government/publication/income-tax-employment-intermediaries-and-relief-for-travel-and-subsistence/income-tax-employment-intermediaries-and-relief-for-travel-and-subsistence#detailed-proposal. It remains an accurate summary of the impacts that apply to this instrument.

A Tax Information and Impact Note covering the amendments made by Part 2 and 3 of this instrument was published on 11th January 2016 and is available on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.