Clause 5 and Schedule 5: supply of information

Schedule 5

127.     The Inland Revenue has a well established duty, judicially approved, of taxpayer confidentiality. Information identifying taxpayers is only released to other government departments in accordance with explicit statutory gateways. Schedule 5 inserts new gateways and amends existing ones so that the Inland Revenue and DSS can exchange the information necessary to carry out their functions.

128.     For example, the Benefit Agency needs data held by the Contributions Agency on contribution records, in order to pay benefits accurately. At present, the Contributions Agency and the Benefits Agency can pool information, since they fall under the same Secretary of State. The Benefits Agency will still need access to contribution records once the Contributions Agency transfers to the Inland Revenue. Otherwise it cannot do its job. So Schedule 5 ensures this access. It does not provide for new, additional exchanges of information.

129.     Schedule 5 does not provide for general pooling of data across the new Inland Revenue/DSS boundary. Nor does it provide new scope for tax data to pass to DSS and its agencies, or beyond.

130.     Taxpayer confidentiality is buttressed by a criminal sanction for unauthorised disclosure of information by Inland Revenue staff (in section 182 Finance Act 1989). Schedule 5 extends the sanction to disclosures relating to the new Inland Revenue tasks.

Detail

131.     The SSAA provisions on exchange of information were substantially extended by the Social Security Administration (Fraud) Act 1997 (SSA(F)A 1997). So Annex B to these Notes shows how the "exchange of information" provisions in SSAA 1992 will read after passage of this Bill.

132.     Paragraph 1 inserts a new section 121E into SSAA 1992. (Sections 121A to D were introduced by Section 63 (recovery of contributions) and 64 (liability of directors for company's contributions) of the SSA.) The new section 121E will give DSS (and DHSS (NI)) mandatory right of access to contributions, statutory sick pay and statutory maternity pay information - but not tax information. Disclosed information may be used only for social security, child support and war pensions purposes (which includes checking the security of National Insurance numbers as well as validating benefit claims).

133.     Paragraph 1 also inserts a new section 121F. This provides for the reverse mandatory exchange, from the Secretary of State or his contractors to the Inland Revenue and their contractors. The disclosable DSS data is about social security, child support and war pensions. It is disclosable only for contributions, SSP and SMP functions.

134.     Paragraph 2 amends the revised version of section 122 SSA 1992, inserted by section 1 of SSA(F)A 1997. This is about discretionary release by the Inland Revenue or Customs and Excise to DSS (or DHSS (NI)) of tax data for fraud prevention, and for checking the accuracy of benefits and other social security records. Subsection (1)(a) of section 122 makes clear that section 122 applies only to tax information: since disclosure of contributions and SSP/SMP information will now be covered by section 121E.

135.     Paragraph 3 inserts a new section 122AA. This is drafted in language echoing that of section 122 as originally enacted (power to allow the Inland Revenue to disclose tax information to DSS.) Section 122AA will allow the Inland Revenue to disclose NICs, SSP and SMP information to four specified government bodies - the Health and Safety Executive, the Government Actuary's Department, the Office for National Statistics and the Occupational Pensions Regulatory Authority - for use for the functions of those bodies. This maintains, for example, current information flows

- about industrial mortality

- for actuarial calculations about the National Insurance Fund

- for statistical analysis about contributors - to help with regulation of pensions.

136.     Paragraph 4 repeals section 122A, SSAA. Section 122A was inserted by the SSA(F)A 1997. It provides for discretionary disclosure by Inland Revenue to DSS and DHSS(NI) and is therefore overtaken by the mandatory disclosure provided under the new section 121E inserted by paragraph 1 of this Schedule.

137.     Paragraph 5 amends section 122B SSAA by removing contributions from its ambit.

138.     Paragraph 6 tidies up the definition in schedule 4, SSAA 1992 of "persons employed in social security administration". Section 123 and Schedule 4, SSA 1992 provide a criminal offence for unauthorised disclosure of social security information. Protection under section 123 is no longer needed, since Inland Revenue staff are subject to separate criminal sanction for disclosure of both tax and social security information (see the description below of paragraph 8, and section 182 of the Finance Act 1989).

139.     Paragraph 7 maintains current information flows, across the new departmental boundary, for pensions purposes.

140.     Paragraph 8 allows the Inland Revenue to disclose pensions information to the same recipients as DSS can now. The new section 158A(1A) of the PSA echoes the language of section 158A(1).

141.     Section 158A was inserted by Schedule 6, paragraph 9, Pensions Act 1995. It provides a table of persons to whom pensions information may be disclosed, for listed functions. The persons to whom DSS may disclose pensions information are

The Treasury

The Bank of England

The Pensions Regulatory Authority

The Pensions Compensation Board

The Friendly Societies Commission

The Building Societies Commission

An Inspector appointed by the Secretary of State for functions under sections 94 or 177 of the Financial Services Act 1986

A person authorised to exercise powers under Section 106 of the Financial Services Act 1986

A designated agency or transferee body or a competent authority (within the meaning of the Financial Services Act 1986)

A recognised self-regulating organisation, recognised professional body, recognised investment exchange or recognised clearing house (within the meaning of the Financial Services Act 1986).

142.     This list may be amended by the Secretary of State by order. And an order may put conditions on disclosures to people on this list. By virtue of the new section 158A(1A), the Inland Revenue will be able to make the same disclosures. Future changes to the list in subsection (1) of section 158A, or to the conditions of disclosure, will read through to disclosures by the Inland Revenue.

143.     Paragraph 9 extends the criminal sanction in section 182, Finance Act 1989 which applies to Inland Revenue staff and others involved in tax administration for unauthorised disclosure of tax information. It will also apply to disclosure of information about "social security functions" held by such staff in the carrying out of their duties.

144.     The tax sanction applies to unauthorised disclosure of tax information about identifiable people. This is extended to disclosure of contributions, SSP and SMP information in respect of identifiable people. "Social security functions" are defined, but only for the purpose of this section, to cover NICs, SSP, SMP and pensions functions, not just of the Inland Revenue and their contractors but of the tax appeal Commissioners.

145.     Paragraph 10 removes the powers in section 110, Finance Act 1997 for DSS to supply the Inland Revenue with information about social security contributions because the new section 121F inserted by paragraph 1 of this Schedule supplants the section 110 references.

Clause 6: Data Pooling

147.     This provision mirrors that in section 3 of SSA which allows the Secretary of State to pool data held for the purposes of functions relating to social security, child support and war pensions. It does not provide for pooling of Inland Revenue and DSS data across the new departmental boundary.

PART II: DECISIONS AND APPEALS

General

148.     Part II of the Bill (clauses 7 to 18 and Schedule 6) provides for Inland Revenue staff to take decisions on matters currently administered by the Contributions Agency. It also provides that appeals against those decisions should, in the main, go to the tribunals that hear tax appeals. Often similar or identical issues will arise for both tax and NICs. An example would be whether a person is employed or self-employed.

149.     Currently, there is no right of appeal to an independent tribunal on NICs issues. Instead, there is a procedure for the Secretary of State to be asked formally to determine one of a range of "questions". That determination is made by DSS civil servants, sometimes following an inquiry assisted by Counsel or by other expert advice. There is a right of appeal, but only to the High Court (in Scotland, the Court of Session) and then only on a point of law.

150.     The SSA provides that a range of decisions by the Secretary of State should be subject to appeal, on both points of fact and law, to a new unified appeals tribunal. That tribunal will subsume the existing benefit appeals tribunal. These provisions will be brought into effect in the course of 1999/2000.

151.     A number of representative bodies, and other interested parties (for example, the Tax Law Review Committee) have suggested that, once the Inland Revenue is responsible for NICs matters, appeals should be heard by the same tribunals as for tax appeals. This would reduce the chances of inconsistent tribunal decisions on the same or similar law, and could provide appellants with better service than having to take much the same issue to two different appeal bodies. During the passage of the Bill which became the Social Security Act 1998, the Government undertook to reconsider use of the unified appeals tribunal for contributions issues.

152.     The broad aim of Part II is to merge aspects of the SSA decision-making process with the TMA appeals procedures. Historically, the appealable decision for tax has been the issue of an assessment or the determination of a claim for relief. Since the introduction of self-assessment, tax appeals will increasingly be against an Inland Revenue amendment to a self-assessment. In all cases, the tax decision against which an appeal is made will potentially cover a range of matters of fact and law, rather than the more specific decisions envisaged in Part II of Schedule 3 to the SSA.

153.     This merger with existing tax rules is complicated by the expected staged entry into force of the Part I of the SSA. There are added complications in merging the two sets of procedures in that income tax is an annual tax. So decisions will normally relate to a whole tax year. By contrast, NICs operate on relatively short - even weekly - pay periods. But the consequences of implicit or explicit decisions on NICs liability, and hence someone's contributions record, may only come to light if benefit entitlement is queried, perhaps years later.

154.     In addition, for NICs it is more likely that someone other than the Inland Revenue and the appellant may have an interest in the outcome of an appeal. An example would be an appeal about employment status, where an individual's employer or engager will face different NICs consequences according to whether the individual is found to be employed or self-employed.

155.     For those reasons the processes for making decisions and handling appeals cannot be exactly the same for NICs as for tax. The provision for decision-making and appeal procedures in Part II needs to cover not just NICs but other operational areas transferring from DSS, that is SSP, SMP and pensions issues.

156.     Taking all these factors together, there will be a wide range of permutations of decision-making and appeals issues. Hence Part II takes a number of regulation-making powers to address details, rather than attempting to specify them in primary legislation.

Clause 7: decisions

157.     Clause 7 provides for the Inland Revenue to take decisions on specified NICs, employment status and SSP/SMP matters. The list of decisions for the Inland Revenue set out in paragraphs (a) to (m) of subsection (1) comprise much of the Secretary of State's existing jurisdiction under section 17(1) of SSAA together with some further matters. The terminology is taken from the Social Security Act 1998.

158.     Clause 7(1)(m) is a general provision along the lines of paragraph 29, Schedule 3, Part II, SSA ("power to prescribe other decisions"). It allows the Inland Revenue to set out in regulations other contributions decisions. For example, this will allow the Inland Revenue to take responsibility for decisions to be taken by its officers that might follow from future changes to the legislation on contributions.

Clause 8: regulations

159.     Clause 8 is modelled on section 11, SSA. It provides for regulations to be made about decisions, so that the permutations mentioned above may be taken into account. It is intended that these regulations will cover matters such as what constitutes a decision, how the decision is to be made and notified to those interested, the persons affected by a decision and the period covered by a decision. It confirms that Inland Revenue staff can seek specialist advice before making a decision. An example would be where medical evidence was relevant to a claim for statutory sick pay.

Clause 9: variation of decisions

160.     Clause 9 gives a regulation-making power for Inland Revenue decisions made under this Bill to be subsequently varied or, (where, for instance, circumstances change), enabling a new decision to be made on the same question. It reflects the powers in section 9 SSA 1998 on revision of DSS decisions in prescribed circumstances, and the powers in section 10 of that Act to supersede earlier DSS decisions. Like sections 9 and 10, clause 9 and the regulations address a range of circumstances, including those where the initial decision was:

     based on incomplete or incorrect facts

     wrong in law

     correct, but circumstances of fact or law have changed.

161.     The power to define when the variation or replacement decision takes effect is needed because decisions may be in respect of a past occasion or period; or may affect the future.

162.     The clause 9 powers only provide for the Inland Revenue to vary or supersede their own decisions - and not those of the tax appeal Commissioners

Clause 10: appeals

163.     Clause 10 provides for a right of appeal to an independent tribunal, the tax appeal Commissioners, against any Inland Revenue decision taken under clause 7. Clause 18 defines "tax appeal Commissioners" as the General and Special Commissioners for income tax. The clause recognises that for contributions questions, unlike (in most cases) for tax, more than one party may have an interest in the outcome of an appeal. For example, both the employer and employee may have an interest in the outcome of an appeal on SSP and SMP. So clause 10 (1)(a) gives appeal rights to both about a person's entitlement to benefit. For other issues, because the permutations of circumstances will be wide, clause 10(1)(b) provides a regulation-making power to give interested persons a right to appeal.

Clause 11: exercise of appeal right

164.     Clause 11 adapts material in section 31 TMA on appeals. The intention is to align the procedures as far as practicable with those for tax appeals. So tax practitioners, and the tax appeal Commissioners themselves, should be able to follow familiar processes in handling these new areas of work. Parties to appeals against Inland Revenue decisions - whether on tax, contributions, SSP or SMP - also would face only a single set of tribunal deadlines and procedures.

165.     Clause 11(1) adopts the 30 day appeal deadline in section 31(1) TMA. Clause 11(2) mirrors section 31(2)'s requirement that the appeal is to be made to the officer who made the decision. Clause 11(3) follows section 31(4) in putting appeals to the General Commissioners (a local lay tribunal) unless the appellant elects to go the Special Commissioners (a national, legally-qualified, tribunal). Clause 11(4) follows section 31(5) in giving the appellant the opportunity to raise additional grounds before the tribunal to those specified in his appeal. Clause 11(5) brings in provisions in the TMA governing the circumstances in which an appellant's election to go to the Special Commissioners may be withdrawn by agreement with the Inland Revenue, or set aside by the General Commissioners.

Clause 12: regulations with respect to appeals

166.     Clause 12 allows the adoption for NICs of most of the material about appeals in Part V TMA. (Part V covers appeals procedures, settling appeals by agreement and taking appeals beyond the initial tribunal.) Because there are material differences between tax and NICs, SSP or SMP, the regulation-making power allows for appropriate modification of the rules for appeals on tax matters. In that respect, it reflects the existing arrangements for appeals to the tax appeal Commissioners for Class 4 NICs, under paragraph 8, Schedule 2, CBA 1992.

167.     The tax appeal Commissioners are funded by the Lord Chancellor's Department in England and Wales, and the Lord Advocate's Department in Scotland. Hence regulations under clause 12 are to be made with the concurrence of those Departments. Detailed regulations on the procedures to be adopted by the General and Special Commissioners are made by the Lord Chancellor (with the Lord Advocate's consent.) Clause 12 provides that current procedural regulations shall be treated as including procedures for appeals to the Commissioners against decisions transferred by this Bill, and that future regulations also should cover appeals against transferred decisions.

Clause 13: matters arising as respects decisions

168.     Clause 13 is derived from section 18, SSA 98. It confers an equivalent regulation-making power to cover matters arising before a decision is made, or about the consequences of varying or superseding a previous decision, including a variation resulting from a formal appeal. Since this power could affect benefit rights, it is to be exercised by the Inland Revenue with the concurrence of the Secretary of State in relation to SSP and SMP matters.

Clause 14: transitional provisions

169.     The SSA, which includes the new material on social security decision-making and appeals to the new unified appeals tribunal, is not yet in force. It will not come fully into force until after the day appointed for the operational transfer. A succession of appointed days in respect of different matters is expected during the course of 1999/2000. The main provisions of the Bill are drafted on the basis that the changes made by the SSA are in place, but for a transitional period that is unlikely to be the case. Clause 14 enables regulations to be made modifying existing adjudication provisions in the SSAA 92 and the pension schemes legislation so as to enable the decision-making regime introduced by this Bill to operate alongside the present arrangements for social security adjudication relating to contributions, SSP, SMP and pensions schemes during that transitional period.

Clause 15: decisions under the Pension Schemes Act

170.     Clause 15(1) transfers to the Inland Revenue the function of making decisions on contracting-out matters which arise mainly under Part III of PSA. The amendments to the Pensions Schemes Act 1993 made under subsection (2) retain the decision-making and appeal procedures to be introduced by the SSA, including an appeal route on pensions issues to the unified appeals tribunal. This is because the work on contracted-out pensions is separate from other current Contributions Agency work, and is specialised and often highly technical and quite distinct from tax and NICs work. The Bill proposes that the few formal appeals expected should stay with the unified appeal tribunal, with its scope to include pensions experts as tribunal members, rather than transfer to the tax appeal Commissioners.

Clause 16: responsibilities at home and credits

171.     Social security legislation provides for people to enhance their contribution records without paying contributions. Examples are credits when someone is undergoing training or on jury service rather than working. Home responsibilities protection is given where someone is a carer at home. Although these provisions are primarily about benefit entitlement, many of the operational tasks are currently undertaken by the Contributions Agency. Rather than relocate the work, clause 16 provides for it to be done by the same people, under Inland Revenue management but acting as agents for the Secretary of State.