National Insurance Contributions Bill

Written evidence submitted by the Chartered Institute of Taxation (NICB01)

National Insurance Contributions Bill 2021

Executive Summary

Clauses 1-5 – Freeports – These introduce a new secondary Class 1 National Insurance contributions (NICs) relief for employers of Freeport employees. It is problematic that the relief applies only to new employees commencing employment from 6 April 2022 when it is expected that UK Freeports will start operating in 2021 and Freeport businesses will, no doubt, wish to take on new employees at that point rather than waiting until April 2022 but will have a perverse fiscal incentive not to do so. Clarification of whether ‘deemed employments’ under the Off-Payroll Working rules are included within scope of this relief (and the veterans’ relief) would be welcome.

Clauses 6-7 – Veterans – This introduces a new secondary Class 1 NICs relief for employers of armed forces veterans. It is unfortunate that employers will not be able to claim the relief in year during the relief’s first year (2021/22), but rather will have to claim it after the year end, which will, undoubtedly, affect their cash-flow.

Clause 11 - Disclosure of contributions avoidance arrangements – This clause enables regulations extending to NICs anti-avoidance measures in the current Finance Bill. We are supportive of robust action in this area, but we are concerned that the seemingly endless chasing down of a small number of promoters through potentially widely applicable legislative change seems to be achieving diminishing returns while adding significant complexity to the tax system. We have a number of suggestions for potentially more effective approaches.

Clause 13 – Interpretation etc – The definition of ‘public authority’ appears to be different, and wider in scope, than definitions used elsewhere for tax and NICs purposes. We suggest defining public authority by reference to the type of body and not by the functions it carries out.

Freeports (clauses 1-5)


In the March 2021 Budget the Chancellor announced that eight Freeports will be created in England: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Thames and Teesside. Discussions continue around further Freeports in Scotland, Wales and Northern Ireland.

These clauses will enable qualifying employers to apply a zero-rate secondary Class 1 NIC up to a prescribed Upper Secondary Threshold (UST) for a period of 36 months from the commencement of employment of eligible employees newly employed at Freeport tax sites, where the employment commences during the period from 6 April 2022 to 5 April 2026. (The government has said that the zero-rate may be extended beyond 5 April 2026 to encompass new hires taken on up to 9 years from 6 April 2022, but this is subject to review of its use and effectiveness to determine whether or not this is appropriate).

The policy is specifically targeted at new employees in Freeport areas and does not apply to existing employees in these areas as it is intended to generate new jobs in these areas.

This supplements measures in Finance Bill 2021 which:

· introduces a new power to designate Freeport tax sites in Great Britain;

· provides for enhanced rates of capital allowances on qualifying expenditure incurred in Freeport tax sites;

· provides for a new relief from stamp duty land tax for certain acquisitions of land situated in Freeport tax sites.

General comments - Freeports

As a general point we are interested in the government’s evidence:

· for why it believed these proposals will achieve their intended benefits;

· on the risk that economic activity will be diverted from other, fully taxed areas, rather than increased overall;

· on the risk that impact will be felt through a rise in commercial property prices in the areas concerned rather than fully in increased activity.

General comments – national insurance relief (clauses 1-5)

It is a little surprising that the zero-rate contributions relief for employers of Freeport employees is not being inserted into Part 1 of the Social Security (Contributions and Benefits) Act 1992 (SSCBA 1992) after the zero-rate secondary reliefs for employees under the age of 21 (section 9A) and apprentices under the age of 25 (section 9B). While the conditions for the relief may make it a bit unwieldy to include within SSCBA 1992, it would be easier to follow the legislation if all the primary legislation relating to zero-rated secondary Class 1 contributions were all in one place. A similar observation arises in respect of the zero-rate secondary Class 1 contributions relief for veterans.

With Freeports in the UK expected to start operating in 2021, the requirement that employment does not commence until on or after 6 April 2022 would appear to hamper Freeport employers that wish to prepare for the commencement of activities at a Freeport tax site prior to 6 April 2022. We therefore suggest, to encourage Freeport employers to take on new employees as soon as they begin to prepare to operate from a newly designated Freeport tax site, that the condition at Clause 2(1)(a)(i) be amended to include any new employee taken on to work at a Freeport tax site after that site is designated as a Freeport tax site (with relief starting from 6 April 2022).

We welcome the announcement that the effectiveness of the relief will be reviewed before any decision is made whether or not to extend the relief to a period after 5 April 2026 (so far as the start date for new employees is concerned).

Clause 1 – Zero-rate contributions for employees at freeport sites: Great Britain

This clause provides that relief applies when secondary Class 1 NICs are due from an employer other than a public authority when the conditions set out in clause 2 are met. The clause also addresses concerns previously raised by the CIOT concerning the interaction of this zero-rate relief with the other zero-rate reliefs and specifies that an employer must elect for Freeport relief to apply in circumstances where they may also qualify for other NICs reliefs (e.g. the zero-rate reliefs for under 21s, under 25 apprentices and armed forces veterans). We assume that further guidance on how such an election should be made will be published by HMRC in due course.

Clause 2 – Freeport conditions

This clause sets out the conditions to be met to qualify for the relief (i.e. that the Freeport employment must begin between 6 April 2022 and 5 April 2026, that the relief will apply for three years from the first day of each eligible employee’s employment, that the employee must spend 60% or more of their employed time in a single Freeport tax site at which the employer has a business premises, etc).

Clause 2(5) provides that the zero-rate relief is available to a secondary Class 1 contributor who is not the employee’s employer. This would appear to mean that where (a) an individual is an employee of their own Personal Service Company (PSC), (b) the PSC contracts with a Freeport business to provide the individual’s services at a Freeport tax site and (c) the Off-Payroll Working (OPW) rules apply to treat the individual as a deemed employee of the business such that the Freeport business is the deemed employer for Class 1 contribution purposes and has to account for PAYE/NICs on payments by the business to the PSC, the Freeport business may be entitled to claim the zero-rate relief. We think it would be helpful to clarify whether this is correct and for HMRC to spell this out in guidance so HMRC’s position is clear/to avoid further questions. A similar observation arises in respect of the veterans’ relief.

If a Freeport business can potentially claim relief in respect of deemed employees under the OPW rules, it would also be helpful to clarify the commencement of employment rule and deemed employment under the Off-Payroll Working (OPW) rules. For example, if a contract with a Freeport based end client commences on or after 6 April 2022, and the OPW rules apply to the contract, can the deemed employer treat the deemed earnings as earnings to which the Freeport employer’s relief applies? Does it matter if the worker’s ‘employment’ with their PSC started before or after 6 April 2022 (so long as the engagement with the Freeport business started after 6 April 2022)? Similarly, will it matter if the worker has been ‘employed’ previously by the end client under a previous contract to which the OPW rules applied (or did not apply) (allowing for the condition at Clause 2(2) and the 2 year gap requirement)?

Clause 2(1)(b) provides relief for earnings that are paid during the period of three years beginning with the first day of employment. However, earnings are often paid at the end of a period. For example, if, say, earnings are paid monthly at the end of each month, for an employee that commences employment on, say, 15 May 2022, the earnings for the period 1 May 2025 to 14 May 2025 would, to qualify for relief, need to be paid before 15 May 2025 rather than the normal pay day of 31 May 2025. Similar observations arise in respect of overtime and bonuses for that final period. Since this requirement is likely to lead to mistakes, guidance will need to be very clear that while earnings may have been earned within the three year period, to qualify for relief they also have to have been paid to the employee within that period! A similar observation arises in respect of the veterans’ relief.

Clause 2(1)(a) provides that the employed earner’s employment is a new employment commencing between 6 April 2022 and 5 April 2026. It is unclear whether an employee that is ‘TUPE’ transferred from an employer to a ‘new’ Freeports business on or after 6 April 2022 qualifies? While Clause 2(2) would prevent an employee qualifying if the two businesses were connected this will not always be the case (e.g. where a Freeport business buys the trade of an unconnected business and commences that newly acquired trade at a Freeport site). In such a case, we assume the Freeport business would be a ‘new’ employer, albeit that their ‘new’ employees would have continuity of employment for employment rights purposes, etc, for the purposes of this relief rather than a ‘pre-existing’ employee?

Clause 2(1)(d) provides that, to qualify for the relief, 60% or more of the worker’s time must be spent at a single Freeport tax site on which the employer has a business premises. This is a welcome and pragmatic approach, especially given the current working from home needs for administrative and finance staff. This said, it does mean that if an employee splits their working time equally between two Freeport sites the employee will not qualify as a Freeport employee, which may not be what is intended.

Clause 3 – Freeport conditions: supplementary

This clause provides HM Treasury with very extensive powers to amend, repeal or otherwise modify this relief. We appreciate that it is easier for government to amend legislation by way of regulation as opposed to enacting primary legislation to make such amendments, but we are concerned that these powers to make changes are too extensive given that secondary legislation often receives little in the way of parliamentary scrutiny. We understand the need to be flexible so far as amending the legislation for the finer detail, but we think that any fundamental changes should be subject to full consultation and scrutiny.

Clause 4 – Anti-avoidance

Clause 4 states that the relief cannot be claimed if an avoidance arrangement has been used and defines what is meant by an avoidance arrangement.

The definition of ‘arrangements’ is consistent with similar definitions elsewhere.

The definition of ‘avoidance arrangements’, however, goes beyond referring to arrangements which include steps which are contrived, abnormal or lacking a genuine commercial purpose (this is the definition used in, eg, Finance (No. 2) Act 2017, section 19), to include any arrangement which it might be reasonable to conclude is ‘circumventing the intended limits’ or ‘exploiting shortcomings’ in the legislation. We are concerned that this ‘catch-all’ provision leaves it unclear how it is to be decided what the intention of the legislation is – potentially giving HMRC the power to determine it retrospectively – and that shortcomings could be diagnosed in circumstances where there are no contrived or abnormal arrangements but simply where relief is being claimed which HMRC considers is inappropriate.

We think it would be helpful for the government to clarify how Clause 4(2)(b) is intended to be applied, so that there is more certainty for Freeport employers in making claims for relief based on their understanding of the policy intent.

Clause 5 - Zero-rate contributions for employees at freeport tax sites: Northern Ireland

We have no comments in respect of this clause, which provides that HM Treasury can make corresponding or similar provisions by secondary legislation in relation to Northern Ireland.

Veterans (clauses 6-7)


These clauses will enable employers to apply a zero-rate secondary Class 1 NIC up to the prescribed Upper Secondary Threshold on the employment income of eligible armed forces veterans during their first year of civilian employment. Subsequent and concurrent employers can also benefit from this relief during the one year period starting from the first day of their first post-armed forces employment. To qualify, a veteran must have completed at least one day of basic training in the armed forces. The relief is available to employers from 6 April 2021 to 5 April 2024.

General comments

The policy intention is that this relief will be available from 6 April 2021, although employers will need to pay the secondary Class 1 NICs on the earnings of eligible veterans for the 2021/22 tax year and then claim this back retrospectively in April 2022. From the 2022/23 tax year onwards employers will be able to claim the relief in real time through their PAYE declarations. In this respect we consider that it is disappointing that employers cannot self-serve the relief for 2021/22 (once the legislation has been passed), especially given the very challenging circumstances of the current pandemic and the cash flow implications arising. Accordingly, we ask whether HMRC could be permitted to exercise its discretion and permit employers to make real time claims for 2021/22, where their payroll software provides for suitable identification of eligible veterans. If this is not possible then a very swift process for claiming back 2021/22 contributions in April 2022 should be developed by HMRC: claims should be processed timeously, and employers should not have to wait months to recover overpaid contributions.

The relief is time limited and currently only available until April 2024 and will be reviewed prior to this date to assess whether it has been effective in supporting armed forces veterans transitioning to civilian life. A decision will then be made on whether to extend the relief based on its effectiveness. We consider this to be a positive and logical approach to ensuring that this relief hits the mark.

Our comments above in respect of the Freeports relief and whether deemed employers of workers treated as employees under the Off-Payroll Working (OPW) rules qualify for the zero-rated relief apply equally to the veterans’ relief. We assume that it is the government’s intention that this relief will be available to the deemed employers of veterans operating through their own Personal Service Company (PSC) since the Summary of Responses [1] , on page 10, confirms that veterans’ relief will include those employed as directors of single director companies, those that are ‘deemed employees’ under the OPW rules, and those that use personal or managed service companies. This is welcome as it allows flexibility for businesses in how they chose to take on the veteran concerned.

Clause 6 – Zero-rate contributions for armed forces veterans

This clause provides for a 0% rate of secondary Class 1 contributions up to an Upper Secondary Threshold (UST) for tax years 2022-23 to 2023-24 if the veteran conditions in Clause 7 are met. It also provides for a repayment of Class 1 contributions to be made after the end of the 2021/22 tax year of Class 1 contributions paid in 2021/22 for armed forces veterans where the veterans conditions would have been satisfied had they been paid in 2022-23 or 2023-24. As noted above, it is unfortunate that employers cannot claim the relief in-year for 2021/22.

The clause also addresses concerns previously raised by the CIOT concerning the interaction of this zero-rate relief with the other zero-rate reliefs and specifies that an employer must elect for veterans’ relief to apply in circumstances where they may also qualify for other NICs reliefs (e.g. the zero-rate reliefs for under 21s, under 25 apprentices and Freeports).

Additionally, we note that there is a spelling mistake in clause 6 (1)(d) where secondary is spelt incorrectly.

Clause 7 – Veterans conditions

This clause confirms that an eligible veteran will include any individual (including a veteran that has re-enlisted and is leaving the armed forces again) that has completed at least one day of basic training in Her Majesty’s regular armed forces. This keeps things simple which will make life easier for employers and veterans to understand whether the relief is due.

Upper secondary threshold (UST) (clause 8)

Clause 8 – Upper secondary threshold for earnings

This clause provides that a UST for secondary Class 1 NICs specifically in relation to armed forces veterans and Freeport earners will be set for every tax year. The clause allows for different USTs to be set for veterans and Freeport employees.

The effect of a UST is that only earnings received above the UST are liable to secondary Class 1 NIC at 13.8%. This is similar to the age-related (under 21s) secondary NIC relief at SSCBA 1992, section 9A and the (under 25s) apprentices’ relief at section 9B, both of which also refer to the Treasury being able to set designated USTs each year.

While, in the past, the zero-rate reliefs have be aligned to a single UST, this need not always be the case and we welcome the provisions that mean that, if in future the UST for Freeports employees or veterans is set at a lower level than the UST for any of the other reliefs, and the Freeport employee/armed forces veteran also qualifies for these other reliefs the employer can benefit from the higher UST threshold by not electing to claim the lower Freeports or Armed Forces veterans’ relief.

We note that the Freeport UST will be set at £25,000 for 2022/23 [2] . This compares to the USTs for Under 21s and apprentices of £50,270 for 2021/22 [3] (which are aligned to the Upper Earnings Limit for Class 1 contributions). The UST for veterans (for 2021/22 or 2022/23) does not appear to have been announced even though the policy paper for this relief was published on the same day as the policy paper for the Freeport relief [4] . Given the huge disparity between the reliefs for Freeport employees and the existing zero-rate reliefs it would be helpful to understand (i) whether the veterans’ UST will be aligned with the existing zero-rate reliefs, the Freeport relief or set to some other threshold, and (ii) the policy intent for setting the Freeport UST to half that of the existing zero-rate reliefs?

Clause 9 – Consequential amendment

This clause ensures that earnings are taken into account for the apprenticeship levy, even where secondary contributions are not made.

Treatment of self-isolation support scheme payments (clause 10)

This clause provides an exemption for payments made under a self-isolation support scheme, ensuring that they are not to be taken into account for the purposes of computing profits liable to Class 4 NICs or for the purposes of Class 2 NICs.

We think the clause achieves the stated aim and we have identified no concerns with it.

Disclosure of contributions avoidance arrangements (clause 11)


This clause widens existing regulation making powers so that regulations can be made for national insurance mirroring the amendments to the DOTAS (Disclosure of Tax Avoidance Schemes) procedures which are included in Finance Bill 2021 (clause 118 and schedule 30 in the original Bill, clause 122 and schedule 31 in the amended Bill as it left the Commons).

The DOTAS regime was introduced in 2004. It provides HMRC with early information about new tax avoidance schemes. This measure and its counterpart in the Finance Bill aim to ensure that HMRC can act quickly where promoters fail to provide information about their avoidance. It provides that when HMRC suspect that a person has failed to disclose arrangements or proposed arrangements which should have been notified to them, HMRC may issue a notice to anyone they suspect of being a promoter or other supplier involved in the supply of the arrangements. This notice explains that if the person is unable to satisfy HMRC that the arrangements are not disclosable, HMRC may allocate a Scheme Reference Number (SRN) to the arrangements.

For the purposes of our comments below we include avoidance of national insurance within our references to ‘tax avoidance’. These comments largely replicate those we made on the companion measures in the Finance Bill, as they relate primarily to the Government’s general approach to tackling avoidance, rather than to the technical detail of the legislation in question.

CIOT comments

The government is right to be taking a robust approach to uncooperative and unscrupulous promoters who continue to devise, promote or sell tax avoidance schemes - most of which do not work. There should be no place for such people and their schemes in the tax market.

We are pleased that HMRC recognise that today’s promoters are rarely members of professional bodies - indeed many, perhaps a majority, are not tax advisers at all. We welcome their taking on board of some of our concerns during the consultation process on this and related measures. For example, restating that it is not the government’s intention that those who are unknowingly involved in supply chains of avoidance would be named alongside promoters under the changes proposed to the DOTAS rules and reconfirming the need for strong internal governance processes for all these new measures.

As a general point, we wonder how successful more and more legislative measures will be in tackling the ‘hard core’ of between 20 to 30 promoters identified by HMRC who clearly do not play by the rules. We note that another consultation, ‘Clamping down on promoters of tax avoidance’, was launched on 23 March 2021 proposing the introduction of further measures. While we support HMRC’s efforts to deal with the problem, this seemingly endless chasing down of a small number of promoters is adding significant complexity to the tax system.

That said, there are a number of areas where we think HMRC could go further, such as:

· wider communications around the risks of avoidance and the types of scheme being promoted, using non-tax-technical language (see below);

· dealing with the issue of generic Tax Counsels’ opinions supporting packaged tax avoidance schemes;

· extending the requirements of Professional Conduct in Relation to Taxation (PCRT) – the code which members of the main tax and accountancy professional bodies are held to – to those parts of the market not subject to it.

In particular on the first of these, we query how effective HMRC’s ‘Spotlights’ are at reaching end users. We are pleased to see that the latest consultation (mentioned above) is considering providing HMRC with powers to publish details of promoters and schemes at an earlier stage than now, and to share more information about schemes with taxpayers that would clarify or correct claims made by promoters. We agree with this. Providing information sooner should help alert taxpayers to schemes which HMRC have concerns about and what those concerns are. Advisers will find this information invaluable when talking to clients who may be considering using a tax avoidance scheme, or who have already used one. It will be essential that this information is communicated in a way that ensures it reaches its intended audience (noting that not all users of tax avoidance schemes make an active choice to use one - particularly the case where they are put into a disguised remuneration scheme by an umbrella company), otherwise it won’t have the desired result of helping taxpayers steer clear of tax avoidance schemes and exit schemes at an early opportunity.

Interpretations etc (clause 13)


This clause defines various terms used in this Bill.

CIOT comments

Clause 13 defines ‘public authority’ as including "any person whose activities involve the performance of functions (whether or not in the United Kingdom) which are of a public nature". This definition differs significantly from that used for Off-Payroll Working (OPW) purposes, where the definition of public authority is based around the UK and Scottish Freedom of Information Acts definitions (plus includes the Houses of Commons and Lords and Assemblies for Wales and Northern Ireland) with special rules for primary-healthcare providers. We think that it would be far better to use the same definition of public authority for all NICs (and income tax) purposes. If there is a specific reason to apply a different interpretation of the meaning of public authority for Freeports NIC relief purposes we suggest that the differences, and the reasons for them, are made very clear. Otherwise there is the risk that these differing definitions could be wrongly applied.

In particular, expanding the scope of the meaning of public authority to include not just designated public bodies but any ‘ person whose activities involve the performance of functions … which are of a public nature , appears to mean that functions that public authorities carry out elsewhere, such as street cleaning, public works, etc that are performed by a private business on a Freeport tax site, will be excluded from the relief. This is likely to be a recipe for confusion that will lead to a lot of uncertainty. It cannot be right that a business that hires new employees to work at a Freeport tax site to undertake functions that elsewhere are of a public nature will not qualify for this relief. Consequently, we suggest defin ing ‘public authority’ by reference to the nature of the body rather than the functions being performed. If this change is not made, comprehensive guidance (that businesses can rely on) will be required to address what activities of a private business carried on a t a Freeport tax site will not qualify for relief.

The Chartered Institute of Taxation

The Chartered Institute of Taxation (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 – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

June 2021


Prepared 23rd June 2021