The Social Security (Contributions) (Amendment No. 4) 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 2001 (S.I. 2001/1004) (“the Contributions Regulations”).

The Contributions Regulations set out how to calculate an individual’s earnings for the purpose of earnings-related National Insurance contributions (“NICs”). Schedule 3 of the Contributions Regulations provides for certain payments to be disregarded for these purposes. In particular, paragraphs 4A to 4D of Part VIII of Schedule 3 to the Contributions Regulations provide that certain payments of travel, subsistence and accommodation costs and expenses in connection with an employment, some or all of the duties of which are performed overseas, are to be disregarded for this purpose. Regulation 3 amends regulation 40(2)(b) of the Contributions Regulations to ensure that payments of general earnings that are disregarded under these paragraphs additionally do not give rise to any liability to Class 1A NICs on the part of a secondary contributor.

Regulation 4 amends regulation 114(5) and (6) of the Contributions Regulations following the enactment of the Merchant Shipping (Standards of Training, Certification and Watchkeeping) Regulations 2015 (S.I. 2015/782) (“the Merchant Shipping Regulations”), which update the requirement for certain workers on merchant shipping vessels to hold certificates of competency. Regulation 114(5) provides an exemption from liability to secondary Class 1 NICs in respect of such a worker if they are employed on or in connection with an offshore installation on the UK continental shelf, and their presence on the vessel is necessary to satisfy the requirements for the safe manning of that ship set out in the Merchant Shipping Regulations.

Regulation 5 adds a new sub-paragraph (da) to paragraph 6 of Part 5 of Schedule 3 to the Contributions Regulations, which provides that any payment which is exempted from income tax under section 323A of the Income Tax (Earnings and Pensions) Act 2003 (c. 1) (“ITEPA”) will also be disregarded for the purposes of calculating an individual’s earnings for NICs. Section 323A was inserted into ITEPA by section 13 of the Finance Act 2016 (c. 24). The section introduces a new statutory exemption from income tax for trivial benefits-in-kind provided by employers to employees.

Regulations 6 and 7 make a number of consequential amendments to the Contributions Regulations. These Regulations are made in consequence of amendments being made to Chapter 2 of Part 5 of the ITEPA and amendments to Part 4 of the Income Tax (Pay As You Earn) Regulations 2003 (S.I. 2003/2682) (“the PAYE Regulations”) by virtue of the Finance Act 2016.

Regulation 6 inserts new sub-paragraphs (6A) to (6C) into paragraph 3ZB of Part 8 of Schedule 3 to the Contributions Regulations to reflect new section 339A(7) to (9) of ITEPA.

In particular, new sub-paragraph (6A) of paragraph 3ZB makes provision for circumstances where a client or a relevant person provides the employment intermediary with a fraudulent document intended to mislead it into thinking that the manner in which the worker provides the service is not subject to the right of supervision, direction or control. In such a case, sub-paragraph (6B) applies.

New sub-paragraph (6B) of paragraph 3ZB provides that where the conditions set out in sub-paragraph (6A) are met, it is the party who provides the fraudulent document who will be liable for the contributions which were not deducted as a consequence of the actions of that person.

New sub-paragraph (6C) of paragraph 3ZB defines “relevant person” for the purposes of sub-paragraphs (6A) and (6B).

Regulation 7 inserts new paragraphs 29Y to 29Z5 into the Contributions Regulations to reflect new provisions inserted into Part 4 of the PAYE Regulations by virtue of the Finance (No. 2) Act 2016. New paragraphs 29Y to 29Z5 make provision in the Contributions Regulations for the recovery from a director or officer of a company of debt owed as a result of paragraph 3ZB of Part 8 of Schedule 3 to the Contributions Regulations not being operated correctly.

In particular, new paragraphs 29Y and 29Z5 define a number of terms for the purposes of Part 3C of Schedule 4 to the Contributions Regulations.

New paragraph 29Z1 provides that where a company has not paid the relevant contributions debt, by the relevant date, then HMRC may serve a personal liability notice on those who were directors of the company on the relevant date in respect of the relevant contributions debt.

New paragraph 29Z2 makes provision in respect of appeals against a personal liability notice served by HMRC under paragraph 29Z1.

New paragraph 29Z3 sets out the circumstances under which a personal liability notice can be withdrawn.

New paragraph 29Z4 provides that Part 6 of the Taxes Management Act 1970 which makes provision as to the collection and recovery of sums due to HMRC applies to personal liability notices.

New paragraph 29Z5 makes provision for cases where the amounts paid to HMRC under a personal liability notice exceed the aggregate of the relevant PAYE debt and the specified interest including payment of interest.

Tax Information and Impact Notes covering the amendments made by regulations 3 (Class 1A exemption for certain travel expenses) and 4 (UK continental shelf workers certification requirements) have been published on the government website at https://www.gov.uk/government/publications/national-insurance-contributions-uk-continental-shelf-workers-secondary-class-1

A Tax Information and Impact Note covering the amendment made by regulation 5 (trivial benefits disregard) was published on the government website at https://www.gov.uk/government/publications/national-insurance-contributions-clarity-for-employers-whose-workers-perform-duties-abroad-class-1a on 9th December 2015 alongside the draft Finance Bill 2016. It remains an accurate summary of the impacts that apply to this instrument.

A Tax Information and Impact Note covering the changes made by regulations 6 and 7 (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/publications/income-tax-employment-intermediaries-and-relief-for-travel-and-subsistence/income-tax-employment-intermediaries-and-relief-for-travel-and-subsistence . It remains an accurate summary of the impacts that apply to this instrument.