Select Committee on Delegated Powers and Deregulation Thirteenth Report




426.  Clause 73 provides that all taxable benefits in kind not already subject to Class 1 National Insurance Contributions (NICs) will be liable to Class 1A NICs liability.

427.  Currently only company car and fuel benefits (which are provided to employees for their private use) are subject to Class 1A NICs. Class 1A NICs is payable by the secondary contributor, usually the employer. There is no employee liability.

428.  Some benefits, such as shares or gemstones offered in circumstances where they are "readily convertible assets", as well as non-cash vouchers, are subject to Class 1 NICs paid by both employers and employees. However, for most other non-cash benefits (e.g. a holiday or personal use of a company flat), there is no current NICs liability.

429.  Clause 73 introduces a new section 10 of the Contributions and Benefits Act 1992. The new section 10 sets out when a Class 1A contribution is due. Class 1A liability will arise where an earner receives an emolument which is, or is treated as, chargeable to tax under Schedule E except where a Class 1 or Class 1B NICs liability exists. The emolument must be from employed earner's employment and the earner must be a director or earn at a rate of £8,500 per year or more.

430.  There are regulation-making powers in new section 10(8) and 10(9).

431.  The new section 10(8) provides regulation-making powers for the Treasury to adjust the effect of the new section 10(7).

432.  The new section 10(7) sets out a list of sections in Income and Corporation Taxes Act (ICTA)1988 under which individual tax payers may claim deductions or reliefs from their tax, but which are not appropriate for the calculation of Class 1A NICs due from an employer.

433.  The new section 10(8) allows amendments to the list of deductions in section 10(7) to be made by secondary legislation. The Department believes that to maintain the principle of tax/NICs alignment i.e. that Class 1A NICs liability follows the tax charge, it is sensible for minor changes to be made by secondary legislation to mirror changes to the tax legislation if necessary.

434.  The new section 10(8)(a) provides for any further deduction or relief sections from any of the Taxes Acts, including Finance Acts, to be added to the list should they be later be identified. This may occur as the current tax deductions and reliefs are contained in a variety of tax legislation, not all of which are consolidated into ICTA 1988. Having the power to amend the list of deductions by secondary legislation will enable any omissions to be corrected and avoid a misalignment between tax and Class 1A NICs.

435.  The new section 10(8)(b) provides for any new tax relieving provision, which may be introduced in future Finance bills, to be mirrored in regulations for Class 1A NICs. As above being able to adjust the list of deductions in 10(7) following an alteration in the Taxes legislation will enable the alignment between the tax and Class 1A positions to be maintained.

436.  The new section 10(9) provides regulation-making powers to exempt certain persons or types of emolument from Class 1A liability or reduce Class 1A liability. This follows the precedent in current section 10(9).

437.  We anticipate using these powers to exempt from Class 1A NICs liability those items we do not wish to be subject to Class 1A NICs, but which would otherwise fall into Class 1A NICs liability by default. Such items would be types of earnings which are excluded from Class 1 NICs in regulations and are not benefits in kind e.g. travel expenses when public transport is disrupted.

438.  In addition, it is intended that the power will be used to mirror for Class 1A NICs any extra statutory concessions (ESC) which operate for tax purposes. For example ESC A74 which excludes from tax liability meals provided by employers in some circumstances. This will ensure that Class 1A NICs liability only arises where there is first a tax charge. The Department believes that this is more appropriate to secondary legislation because it would be inappropriate to mirror an extra statutory concession in primary legislation and the provisions cannot be used to increase NICs liability.


439.  Under clause 73(7) the Class 1A NICs scheme comes into effect from 6 April 2000, although the Bill will not attain Royal Assent until after that date. The Class 1A NICs liability like tax, has an annual basis and is payable after the end of the tax year.

440.  For tax, a resolution under the Provisional Collection of Taxes Act would be passed. This is not possible for NICs. Clause 73(8) therefore provides that any statutory instruments made under any of the powers in the clause may be backdated to the beginning of that tax year in which they are made.

441.  In future years it may be necessary to mirror tax changes to the treatment of benefits in kind in a Finance Bill which takes effect from the beginning of the tax year for Class 1A NICs. Being able to make Class 1A regulations which are effective from the beginning of the tax year, will keep the Class 1A NICs liability aligned with the tax charge. As such tax changes will have already been debated and the NICs measures would simply be mirroring them, the Department believes that this is more appropriate to secondary legislation.

442.  Subsection (3) of clause 73 substitutes a new section 4(6) into the Contributions and Benefits Act (CBA). This provides the power to introduce regulations to treat as earnings for NICs purposes, an amount on which an employee is chargeable to tax under Schedule E.

443.  Section 4 of the CBA treats certain amounts as earnings for NICs, where they would not otherwise fall to be so. It also allows the time and manner in which the earnings are to be treated as being paid to be specified in regulations.

444.  We intend to use the power in the new subsection 4(6) to prescribe that where an employee buys or obtains goods or services by use of a company credit card the amount involved in the purchase shall be liable to Class 1 NICs.

445.  It is also envisaged using the power in relation to the New All Employee Share Plan. The Government confirmed in its Pre-Budget Report in November 1999 that a new approved all employee share plan will be introduced in the next tax year. The New All Employee Share Plan aims to encourage wider share ownership by employees in their employer through tax and NICs advantaged schemes. The proposals have been the subject of wide consultation. The tax reliefs on share acquisition will be mirrored by NIC reliefs under existing powers. The new section 4(6) will allow the Income Tax charges to be mirrored for NICs where that tax charge is subject to PAYE.

446.  The tax legislation will be introduced through the Finance Bill 2000. Introducing the detail of the matching legislation in regulations will enable the NICs legislation to respond to any changes that are made to the tax legislation through the passage of the Finance Bill and is also in keeping with the current practice.

447.  In future, the new power may be used to achieve tax and NICs technical alignment where this is sensible. In the past the NICs position has sometimes become mis-aligned with the tax position because the only means of achieving alignment was an amendment to primary legislation. Regulations made under the new section 4(6) power may have retrospective effect, within the tax year in which they are made, to allow the NICs position to align fully with the tax position, from the date of the tax change.


448.  Clause 74 concerns the provision of benefits in kind to employees by somebody other than their own employer - a third party. The clause moves the liability for Class 1A NICs on benefits in kind from the employer to the third party. The clause only operates where the employer has not arranged or facilitated the provision of the benefit.

449.  Subsection (1) introduces new sections 10ZA and 10ZB into the Contributions and Benefits Act 1992. 10ZA(1) lists the four elements necessary for the new section 10ZA to apply. The employee or a member of his family must receive a taxable emolument that attracts a Class 1A charge under the new section 10; the benefit concerned is provided by someone other than the employer; and the employer has not arranged or facilitated the provision. In the case of vouchers provided to employees by third parties 10ZB means a Class 1A NICs liability will arise no matter whether they earn over the £8,500 limit set for benefits or below that level.

450.  10ZA subsection (5) gives the Treasury power to prescribe in regulations the exact meaning of "arranged or facilitated". The term is used in the Income Tax (Employment) Regulations 1993 but is not defined. Having this regulation-making power means that should circumstances arise where it is not clear whether the employer has arranged or facilitated the provision of the benefit, it will be possible to put this beyond doubt. It is not envisaged that this power will be used immediately. However, the Department believes it is necessary to deal with any operational difficulties which arise once the scheme is operating.

451.  On Royal Assent this clause will take retrospective effect to 6th April 2000. As the new section 10ZA concerns Class 1A liability for third party providers of benefits in kind it is necessary that regulations made under 10ZA subsection (5) can be backdated to 6th April 2000 when the new section 10 is to come into effect. The Class 1A NICs liability like tax, has an annual basis and therefore it is important that any changes relating to Class 1A liability can be backdated to the beginning of the tax year. Subsection (4) allows any regulations made under the power in the new 10ZA (5) to be effective from the commencement of the tax year in which they are made. New section 10ZA comes into force from 6 April 2000 on Royal Assent, as does the new section 10. It is therefore necessary that any statutory instrument made under the powers in the new section 10ZA(5) may be effective back to the beginning of the tax year in which they are made. This will allow a third party to be liable for the Class 1A NICs liability on benefits provided by them from the beginning of the tax year.


452.  Clause 75 provides the necessary powers for the introduction of a new single method of payment and collection for Class 1A NICs, to replace the two current ways in which an employer can pay his Class 1A liability; either with tax through the Pay As You Earn (PAYE) system, or directly to the National Insurance Contributions Office.

453.  The new system requires that certain measures in tax legislation (relating to the PAYE scheme) are mirrored in NICs legislation, or that measures which already exist in NICs legislation but which only apply to NICs collected with tax are applied to the collection and payment of Class 1A NICs only. This is the purpose of much of clause 75.

454.  Subsection (4) inserts a new paragraph 7B(5A) of Schedule 1 to the Contributions and Benefits Act. This sub-paragraph provides for regulations to prescribe certain penalties which are similar to tax penalties contained in Part X of the Taxes Management Act 1970.

455.  As the detail of tax penalties may change from time to time, it will be necessary to change the NICs legislation accordingly in order to maintain alignment. It is the Department's view that having the Class 1A penalties measures in regulations provides the flexibility to respond quickly and appropriately to any tax law changes which are implemented through the Finance Bill.

456.  Subsection (5) inserts a new paragraph 7BA into Schedule 1 to the Contributions and Benefits Act. The new paragraph 7BA allows regulations to provide that where an employer discovers that he has overpaid an amount of Class 1A NICs, he may deduct the overpaid amount from any secondary Class 1 contributions which he is liable to pay subsequently in the same tax year. This reduces administrative overheads on the part of the employer, and also eases the administration of Class 1A for the Inland Revenue. This concerns purely operational matters to ease the administration of NICs which are the Department believes are appropriate to secondary legislation.


457.  Clause 76 replicates for the Social Security Contributions and Benefits (Northern Ireland) Act 1992 those measures contained in clause 73 for Great Britain.


458.  Clause 77 replicates for the Social Security Contributions and Benefits (Northern Ireland) Act 1992 those measures contained in new clause 74 for Great Britain.


459.  Clause 78 replicates for the Social Security Contributions and Benefits (Northern Ireland) Act 1992 those measures contained in clause 75 for Great Britain.

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