The Social Security (Contributions) (Amendment) Regulations 2018

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Social Security (Contributions) Regulations (S.I. 2001/1004) (“the Contributions Regulations”).

Part 1 of these Regulations makes consequential amendments to the Contributions Regulations as a result of changes to the income tax treatment of benefits in kind provided under optional remuneration arrangements (“OpRAs”) in Finance Act 2017 (c. 10) (“FA 2017”). OpRAs are a contractual arrangement between an employee and an employer, commonly known as salary sacrifice, under which an employee agrees to sacrifice a portion of cash pay in return for the provision of a benefit.

Regulations 4 and 6 amend regulation 22A and paragraphs 7, 7A and 9 of Part 8 of Schedule 3 to disapply a number of disregards from liability to Class 1 National Insurance contributions (“NICs”) for payments of certain types of motoring expenses, where these payments are made under an OpRA.

Regulation 5 inserts new paragraph 14A into Schedule 2 to the Contributions Regulations, which sets out an alternative method for calculating the amount of earnings comprised in a non-cash voucher for Class 1 NICs purposes if this voucher is provided under an OpRA. It specifies that the amount of earnings is whichever is the higher in value of (i) the expense incurred in connection with the provision of the voucher, or (ii) the cash pay that the employee has sacrificed in return for the voucher. New paragraph 14A(7) specifies that the amount of earnings is the cash pay sacrificed if the voucher would have been exempt from income tax but for section 228A(1) of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (“ITEPA”), which disapplies most income tax exemptions applicable to benefits in kind if these are provided under an OpRA.

Part 2 of these Regulations makes consequential amendments to paragraphs 6, 7 and 7A of Part 5 of Schedule 3 to the Contributions Regulations to limit the scope of two disregards from liability to Class 1 NICs for payments to an employee of qualifying vouchers to obtain childcare. The amendments limit these disregards to payments of childcare vouchers made for the benefit of an “eligible employee”, as this term is defined in section 270AA of ITEPA. This mirrors changes to the corresponding income tax exemption for childcare vouchers introduced by section 63 of the Childcare Payments Act 2014 (c. 28).

Part 3 amends regulation 40B of the Contributions Regulations so that the exemption from liability to pay Class 1A NICs in respect of sporting testimonial payments provided by that regulation for the tax year 2017-18 will continue to apply in subsequent tax years.

A Tax Information and Impact Note covering the changes made by FA 2017 to the treatment of OpRAs was published on 5th December 2016 and is available at https://www.gov.uk/government/publications/income-tax-limitation-of-salary-sacrifice. It remains an accurate summary of the impacts that apply to Part 1 of this instrument.

A full Impact Assessment of the effect that the Childcare Payments Bill and consequential National Insurance legislation would have on the costs of business and the voluntary sector was published on 10th June 2014 alongside the draft of the Bill and was updated on 20th November 2014. An updated Impact Assessment was made on 30th March 2017 and is available at http://www.legislation.gov.uk/ukpga/2014/28/impacts. The original Impact Assessments are available at https://www.gov.uk/government/publications/tax-free-childcare-impact-assessment. The updated Impact Assessment remains an accurate summary of the impacts that apply to Part 2 of this instrument.

A Tax Information and Impact Note covering the amendments made by Part 3 was published at https://www.gov.uk/government/publications/income-tax-update-to-treatment-of-income-from-sporting-testimonials/income-tax-update-to-treatment-of-income-from-sporting-testimonials on 16th March 2016 and updated on 9th November 2017. It remains an accurate summary of the impacts that apply to this Part.