(This note is not part of the Regulations)
These Regulations, which come into force the day after they are made, are made following enactment of Part 1 of Schedule 17 to the Finance Act 2014 (c. 26) which inserted sections 863A to 863G into the Income Tax (Trading and Other Income) Act 2005 (c. 5) (ITTOIA 2005) and amended section 54 of the Income Tax (Earnings and Pensions Act 2003 (c. 1) (ITEPA 2003). These Regulations reflect those provisions and prescribe that certain members of a limited liability partnership who are treated as employees for the purposes of the Income Tax Acts are also treated as employed earners for the purposes of the Social Security Contributions and Benefits Act 1992 (c. 4) (“the SSCBA 1992”) if the employment is in Great Britain or the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) (“SSCB(NI)A 1992”) if the employment is in Northern Ireland (together “the Acts”).
Regulation 1 provides for the citation, commencement and effect. These Regulations will have retrospective effect from the beginning of the 2014/15 tax year. The power to make these regulations with retrospective effect is to be found in section 4B of the Acts (as amended by the National Insurance Contributions Act 2014 (c. 7)).
Regulation 2 contains definitions.
Regulation 3 prescribes that where an individual is treated by section 863A of ITTOIA 2005 (including where that is the case by virtue of the anti-avoidance provisions in section 863G of ITTOIA 2005) as being employed by a limited liability partnership under a contract of service for the purpose of the Income Tax Acts and if the services were actually performed or to be performed under a contract of service the employment would be employment in Great Britain, the following provisions apply for the purposes of SSCBA 1992.
That individual (defined as a Salaried Member) is treated as employed in employed earner's employment by the limited liability partnership, any amounts which are treated as employment income by virtue of section 863A (except where subject to tax under the benefits code) are treated as earnings of that Salaried Member, where the earnings are employment income by virtue of section 863G they are treated as paid to the Salaried Member when the amount mentioned in section 863G(2)(d) arises, the limited liability partnership is treated as the secondary contributor and the definitions of “employer” and “employee” in Parts 11 (statutory sick pay), 12 (statutory maternity pay), 12ZA (paternity pay) and 12ZB (statutory adoption pay) of the SSCBA 1992 are to be read as if the Salaried Member were gainfully employed by the limited liability partnership under a contract of service.
Regulation 4 makes similar provision for the purposes of SSCB(NI)A 1992 where, if the services were actually performed or to be performed under a contract of service, the employment would be employment in Northern Ireland.
Regulation 5 inserts a new regulation 40A and paragraph 25 of Part 10 of Schedule 3 into the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004). The effect of the new regulation and paragraph is that where Class 1 or Class 1A contributions are payable pursuant to regulation 3 or 4 by a limited liability partnership, a subsequent payment of earnings or benefit to the Salaried Member by an employer that relates to the original payment from the limited liability partnership to the intermediary is not subject to further Class 1 or Class 1A contributions.
Regulation 6 amends regulation 7(1) of the Social Security Contributions (Intermediaries) Regulations 2000 (S.I. 2000/727). Regulation 7 amends regulation 7(1) of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000 (S.I. 2000/728). The effect of these amendments is that any payments to the intermediary from the limited liability partnership on which Class 1 or Class 1A contributions are payable pursuant to these Regulations and any earnings and benefits paid by the intermediary to the Salaried Member that relate to those payments are disregarded when computing the worker's attributable earnings in those Regulations.
A Tax Information and Impact Note covering this instrument was published on 5th December 2013 and is available on the HMRC website at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263833/131205_NICs_Bill_Partnerships_TIIN.DOC . It remains an accurate summary of the impacts that apply to this instrument.