National Insurance Contributions Bill

I hope that I can help the noble Baroness with her inquiries into these matters. The purpose of Clause 3 is to introduce powers to enable the Treasury to make regulations on matters affecting the law that relate to class 1A national insurance contributions, in consequence of retrospective tax legislation which affects a person’s general earnings. The regulations may have effect back to 2 December 2004, if necessary. Clause 3 contains a power to make backdated regulations for the purposes of class 1A contributions. In the case of class 1A national insurance contributions, under existing legislation backdated tax changes have an automatic effect on class 1A liability. The clause enables machinery regulations to be laid that set out how employers should account for additional class 1A contributions, how those should be paid and the consequences in terms of penalties and interest of not accounting for and paying the additional class 1A liabilities on a timely basis. This Bill is about deterring avoidance and ensuring that those who seek to do so pay their fair share of national insurance. While class 1A liability would automatically flow from a tax liability on general earnings, we require the clause to ensure that machinery provisions can be designed to implement collection of any backdated class 1A national insurance that may arise as a result of retrospective tax legislation. Secondly, it is important to future-proof the legislation and not create incentives for class 1A avoidance schemes. If we did not include reference to provisions enabling effective collection of class 1A contributions, those seeking to avoid their tax and national insurance liabilities would focus on exploiting the loophole. We want to save them the effort by making it clear that this avenue is closed as well. Consequential changes may also be necessary in matters relating to class 1A contribution liability. For example, more than one employer may provide to the same employee a benefit which is chargeable to tax and which gives rise to a liability on each employer to pay a class 1A contribution. That liability is apportioned under existing regulations between the employers. If a retrospective tax provision then provides for a revaluation of that benefit and alters the amount chargeable to tax in respect of it, it may be necessary to redetermine the apportionment and the amount due from each of the employers in respect of the resulting revised class 1A liability for a retrospective period. We would need to be able to make provision for how the class 1A was apportioned for the retrospective period; Clause 3 enables us to do that. I am happy to take the Committee through the individual clauses, although I hope that my explanation has sufficiently dealt with the matter. If it is a comfort to the noble Baroness, when I first read it, I also struggled to understand where it was heading, but I had the benefit of some helpful guidance notes from the Treasury.