Session 2014-15
National Insurance Contributions Bill
Written evidence submitted by the Chartered Institute of Taxation (NI 02)
Simplifying NICs paid by the self-employed (Clauses 1 & 2, Schedule 1) |
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According to the Tax Impact Note issued alongside the Bill, arrangements will be offered to those who wish to spread the cost of their Class 2 NICs throughout the year which will be especially useful to some low paid workers who may find payment of Class 2 NICs in a lump sum at the same time as income tax and Class 4 NICs financially difficult. However, these arrangements are not mentioned in the Bill itself. HMRC should announce the details of the arrangements as soon as possible before April 2015 in order to provide clarity and certainty to taxpayers who may wish to take advantage of them. It would also be helpful to know if the arrangements will be offered to everybody or whether there will be restrictions on who can use them. |
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We think that by including the small earnings exemption (SEE) process within self-assessment and removing the requirement to apply for exception from paying Class 2 NICs is a welcome simplification. Allowing voluntary payments of Class 2 NICs is also welcome, and sufficient publicity about this should be provided to those affected so that they don’t miss out on some contributory benefits. This could be done, for example, on the self-assessment tax return, but note that some affected self-employed individuals may be outside the self-assessment system. Clearly there will also need to be appropriate differentiation from voluntary Class 3 contributions, which are much more expensive. |
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It is disappointing that there is no reference in the Bill to simplifying the deferment application process, despite it also having been consulted on last year. We would like to see the Government address this as it is a significant driver of complexity in the Class 2 system. |
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There will be a gap of 22 months between the collection of Class 2 payments for 2014/15 and the collection of payments for 2015/16, as liability moves from a weekly basis to arising at the end of the tax year. Thereafter, the payment of Class 2 will be in arrears on the 31 January following the end of the tax year. This could affect entitlement to benefits because under the current system, the entitlement to many contributory benefits is based on the claimant having paid contributions. |
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We would ask the Government to confirm that they have considered what changes may be needed to the entitlement rules in Schedule 3 of the Social Security Contributions and Benefits Act 1992 in respect of the benefits that are payable based on the claimant having paid contributions, for example state retirement pension, to ensure that moving the payment of Class 2 NICs to after the end of the tax year does not adversely affect entitlement to contributory benefits. |
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It is our view that the proposals to allow women to continue to become eligible for the standard rate of MA post reform are impractical (paragraph 26 annex A to the Explanatory Notes [1] ). They would have to make voluntary contributions before they file their self-assessment returns. This demands a very high level of forward planning on the woman’s part. Good publicity and taxpayer education are vital here, so that women don’t lose out on the standard rate of MA through ignorance. We suggest that a review is carried out once the new regime has been in place for two years in order to assess whether the number of claims for the standard rate of MA have reduced as a result of these changes |
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It is disappointing that the Government has not also taken the opportunity to simplify NICs for the self-employed by amalgamating Class 2 and Class 4 into a single class of NIC. |
Extending new rules for follower notices & accelerated payments to NICs (Clauses 3 & 4, Schedule 2) |
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Follower Notices HMRC have said that they are putting in place strict internal governance and safeguards so that follower notices can only be issued following approval at senior level within the organisation, and will be scrutinised by staff other than those who have been working on the detail of the case [2] . However, it remains the case that HMRC will be reviewing their own decisions. In addition, we do not know how the internal governance process operates. This is a key part of the practical operation of the legislation and it would help if the process was made transparent. We ask that the Government are more forthcoming about how the governance process will operate. |
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The follower notice legislation gives HMRC very broad powers. It is important therefore to be sure that they will be used only in suitable cases. We can envisage there will be difficulties in identifying appropriate follower cases. There will no doubt be cases that look to have similar principles (or reasoning) laid down as those in a ‘relevant judicial ruling’, but which are arguably not the same. It would be helpful to know exactly how follower cases are to be selected by HMRC, particularly as there is to be no formal right of appeal to the Tribunal following the issue of a follower notice, only the opportunity to send written representations to HMRC objecting to the notice on specified grounds. |
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We think it is inevitable that the lack of a formal appeals process will lead to more judicial review applications being made. If the taxpayer does not consider it is reasonable for a follower notice to be issued in his particular case, in the absence of any specific appeal powers, his only remedy would be to resort to judicial review to have the notice quashed. We ask that the Government provide assurances that HMRC will not issue follower notices except when cases are on precisely all fours with the precedent case, so that the occasions where a taxpayer might have to resort to judicial review would be kept to a minimum. |
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Accelerated payments notices Schedule 2 paragraph 17 (2) states that an accelerated payment of the understated Class 1 and 2 NICs is a payment of the understated contributions, not a payment on account (unlike its sister provision for other taxes in Section 223(3) FA 2014). This is because of the need for sums to be treated as contributions and so that their payment can count toward the qualifying conditions for contributory benefits. |
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There are provisions in paragraph 17 (7) dealing with the repayment of an accelerated payment of contributions and, as this legislation is meant to mirror that in FA14, one assumes that HMRC intend to repay accelerated payments of NICs in appropriate cases. However, we were concerned that there appears to be no provision in the existing social security regulations or the NIC Bill to permit HMRC to make a refund if the contributions are ultimately found not to have been due. Regulation 52 of the Social Security (Contributions) Regulations 2001 refers to applications for return of contributions that have been paid in error or in excess of the annual maxima, but nothing else. We have therefore sought clarification from HMRC. HMRC have assured us that they do not consider that they would have to rely on Reg 52 in order to repay NICs, because, depending upon the precise circumstances of the matter in dispute, either they would have authority for repayment from the binding nature of the final determination as between the parties and also under Regs 10 to 12 of the Social Security Contributions (Decisions and Appeals) Regulations 1999 or the principles of public law would require them to repay the accelerated payments of NIC. They do not consider that express provision in the NIC Bill for repayment of accelerated payments of NICs is therefore necessary. |
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We ask that the Government provide further information on how the internal governance process will operate to give both taxpayers and advisers a better understanding and more certainty of how and when cases will be selected to receive an accelerated payments notice, given the potentially large sums of money involved. |
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Another concern we have had with these measures is that they do not specifically address how the underlying disputes will be settled. We ask that the Government provide an update on the measures it has been putting in place to provide support and focus for its operational work on implementing the Finance Act 2014 measures. |
Extending new rules for ‘high-risk’ promoters to NICs |
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Mainstream compliant advisers will want reassurance that inadvertent or unintentional mistakes will not result in the issue of conduct notices. This is especially important because there is no right of appeal against the issue of a conduct notice, only the opportunity to comment on the proposed terms of the notice. It is disappointing that we are having to rely on HMRC guidance to determine the situations which will not be treated as warranting the issue of a conduct notice because they are considered to be insignificant or because they meet the tax impact safeguard. This approach generates unnecessary uncertainty. |
Other comments No provision is made within the TAAR in respect of paragraphs (9)(e) and (f) of Schedule 3 of SI 1978/1689. It is unclear why this is the case. |
The Chartered Institute of Taxation (CIOT) |
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The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work. For further information, see our website here: http://www.tax.org.uk/about_the_ciot. |
[1] http://www.publications.parliament.uk/pa/bills/cbill/2014-2015/0080/en/15080en.htm
[2] Para 3.10 Tackling Marketed Tax Avoidance Summary of Responses issued March 2014