National Insurance Contributions Bill

Written evidence submitted by the Institute of Chartered Accountants in England and Wales (NI 05)

1 ICAEW Tax Faculty welcomes the opportunity to comment on the National Insurance Contributions (NIC) Bill 2014.

What the Bill does

2 The Bill makes four changes to the NIC rules, as follows:

class 2 NICs are brought into self assessment;

the provisions found in Part Four of the Finance Act 2014 (FA 2014) relating to follower notices & accelerated payments are extended to include NICs;

the provisions found in Part Five of FA 2014 relating to the high risk promoter rules are extended to include NICs; and

the targeted Anti-Avoidance Rule (TAAR) found in s 16 FA 2014 to tackle tax avoidance by self-employed agency workers (so-called false self employment) are extended to NICs.

About ICAEW and the Tax Faculty

3 ICAEW is a world leading professional membership organisation that promotes, develops and supports over 142,000 chartered accountants worldwide. We provide qualifications and professional development, share our knowledge, insight and technical expertise, and protect the quality and integrity of the accountancy and finance profession.

4 As leaders in accountancy, finance and business our members have the knowledge, skills and commitment to maintain the highest professional standards and integrity. Together we contribute to the success of individuals, organisations, communities and economies around the world.

5 The ICAEW Tax Faculty is the voice of tax within ICAEW and is a leading authority on taxation. Internationally recognised as a source of expertise, the faculty is responsible for submissions to tax authorities and provides a range of information services, including TAXline, a monthly journal, a weekly newswire and a referral scheme.

Clauses 1 & 2 and Sch 1, Class 2 contributions

General comments

6 On 14 September 2014 the Social Security Advisory Committee published a paper (see https://www.gov.uk/government/publications/ssac-occasional-paper-13-social-security-and-the-self-employed on NIC for self employed that recommended that DWP sets up a working group to examine the balance in social security coverage – both in terms of entitlement and contributions – between self-employed and employed workers. We support that recommendation.

Detailed provisions

7 The measures will enable self-employed customers to pay their Class 2 NICs (currently £2.75 a week) through Self Assessment (SA) alongside income tax and Class 4 NICs. Currently they are paid separately from the self assessment system.

8 This change should provide a small but worthwhile simplification of the NIC system and help to reduce the admin costs and burdens on both HMRC and the self-employed. The change was suggested originally by the Office of Tax Simplification in 2011 and was followed up by a consultation paper published by HMRC in 2013 to which we responded (as TAXREP 54/13).

9 We supported the initiative to simplify collection of self employed NIC along the lines proposed but suggested that more radical change was needed to achieve real simplification. We suggested that real simplification would be achieved by abolishing Class 2 NIC, including the small earnings exception, and making Class 4 NIC contributory, perhaps with a zero% NIC liability for those self employed who do not make profits greater than a set threshold or losses.

10 The measure will also change the structure of Class 2 NICs so that only those with profits (chargeable to tax under Chapter 2, Part 2 Income Tax (Trading and Other Income) Act 2005) above a profits threshold will be liable to Class 2 - those without profits or with profits below this threshold will be able to pay Class 2 NICs voluntarily. Under current rules Class 2 NICs are due on profits regardless of the level, subject to the ability to make an application for the small earnings exception – currently set at £5,885 for 2014/15. Again, this change will be a small but worthwhile simplification and should reduce admin burdens and costs.

Date of payment of Class 2 to ensure eligibility for maternity allowance

11 Para 18(3) of Sch 1 provides the power to make regulations so that women claiming maternity allowance will not be prejudiced by the rules on late paid Class 2 NIC which as currently expressed could mean that claimants who pay their Class 2 on the new due date of 31 January after the year of assessment lose entitlement.

12 We should welcome confirmation that such regulations will be laid. We also recommend that the regulations be expressed in the same terms set out in 18(3), and suggest that the ‘prescribed date’ in new para 7BB(1)(b) should be 31 January following the fiscal year for which the contributions are paid, ie the same as the due date for making the balancing payment of tax.

Clauses 3 & 4 and Sch 2, Follower notices, accelerated payments and promoters of avoidance

Refunds of NIC paid and not due

13 A power is needed to give HMRC the legal vires to repay NIC that is found to have been overpaid in connection with an accelerated payment notice.

14 In contrast with the tax provisions which provide that the payment is on account of the final liability due, para 17(2) of Sch 2 says that the accelerated payment is ‘a payment of the understated contributions (and not a payment on account of them)’. This and the other provisions in para 17 mean that any contributions paid over and above an amount that even a court finds to be due cannot be refunded as there was no error when the sum was paid. And as there is no appeal against an accelerated payment notice, there can be no determination of an open appeal to create an overpayment that can be repaid.

Clause 5, Categorization of earners etc: anti-avoidance

15 This clause introduces a targeted anti avoidance rule (TAAR) for NIC analogous to that set out in s 16, FA 2014 to tackle income tax avoidance by self-employed agency workers.

16 We question whether this clause is necessary. In our view the TAAR is superfluous and consideration should be given to removing it from the Bill. This is because there is already a general anti avoidance rule (GAAR) for NIC and when this is added to the TAAR introduced by FA 2014 for income tax avoidance, these should be sufficient in themselves to stop such planning arrangements without the need to add a further NIC TAAR.

17 We should welcome clarification of why this change to the Regs is being done by primary legislation? While in principle we support changes being made by way of primary legislation which is subject to proper parliamentary scrutiny, other recent and associated changes to the same Regs were done by way of secondary legislation. Why has a different approach been adopted here?

October 2014

Prepared 22nd October 2014