National Insurance Contributions Bill

Indeed, it is not an insignificant amount of money and it should have been paid. The vast majority of taxpayers pay, but non-payment has direct effects not only on the tax collected but on the money that goes into the national insurance fund. In 2004, I gave notice of our intention to deal with any future arrangements that were designed to frustrate our intention that employers and employees should pay their fair share of tax and national insurance on their rewards for employment. When we become aware of such arrangements, we will introduce legislation to close them down and, I repeat, when necessary, with effect from 2 December 2004. If some people think that the Government’s resolve has weakened, my statement stands today as strongly as it did on 2 December 2004. We are closely examining what has happened since that date. I want employers and their advisers to be in no doubt. If they continue to avoid their responsibilities, or are thinking of doing so in future, we will not hesitate to introduce further legislation to close down their schemes. As a first step towards demonstrating our commitment to taking action, schedule 2 to the Finance (No. 2) Act 2005 was introduced to strengthen the income tax rules dealing with employment-related securities back to 2 December 2004. The Government had already published a draft technical note alongside the pre-Budget report last year, explaining our proposals, followed by draft legislation in February 2005. Interested parties have therefore had an extensive period in which to scrutinise and comment on the detail of the provisions, which were then fully debated during the Committee stage of that Act. The Bill before us is the second legislative step that demonstrates our commitment to taking action against avoidance. It is key to achieving the Government’s objectives of fairness and opportunity by ensuring that all pay their fair share of tax and national insurance. It is also an essential element in building a serious and credible deterrent against future avoidance. As the tax disclosure provisions have demonstrated, and as we and the previous Conservative Government have discovered, it is not always possible to anticipate the range and complexity of those extremely contrived arrangements. The Government intend to close down such avoidance schemes permanently. The Bill will ensure that the Government can deal with any arrangements designed to frustrate their intentions. That will ensure that the tax and national insurance that should rightly be paid on rewards for employment are paid. There is no annual equivalent of the Finance Bill for national insurance, so the Bill provides the necessary powers to apply national insurance to payments from such schemes. When the Government become aware of arrangements that attempt to avoid national insurance contributions as well as tax, we will introduce regulations to close them down, where necessary from 2 December 2004. This action will not affect the vast majority of employers and employees, who organise their affairs in a straightforward and transparent way. In particular, genuine employee share schemes and share option plans will not be affected. The Bill provides for a power to make regulations in respect of national insurance that reflect backdated tax changes that take effect on or after 2 December 2004 and which may be outside the scope of existing national insurance legislation. The power will allow for national insurance liability to be charged starting from 2 December 2004, if necessary. The Bill is needed to extend existing regulation-making powers and to make it possible to impose a national insurance charge on disguised remuneration that is capable of taking effect from 2 December 2004, where necessary. Currently, a national insurance liability can usually be charged only from the date on which the national insurance regulations are made, except in limited circumstances in which the regulations can be backdated to the beginning of the tax year in which the regulations are made. This is in contrast to tax, where liability can, if the legislation so provides, be applied retrospectively to the date of an announcement made before the legislation receives Royal Assent. Provisions in the Bill also allow for consequential changes for the purposes of contributions, contributory benefits and statutory payments where appropriate. For instance, a national insurance charge might be levied back to 2 December 2004 to align with the start date of anti-avoidance tax measures. In such a case, the provisions of the Bill, and the regulations made under the powers in the Bill, would ensure that those contributions would count for the purposes of contributory benefit and statutory payments. The Bill also provides a power to extend the avoidance arrangement disclosure rules to national insurance that currently apply to income tax. Finally, it provides a power to prevent the use of national insurance contribution elections and agreements over shares and securities that have been targeted by backdated national insurance regulations made under the Bill. This will mean that employers cannot pass on to their employees their own national insurance liabilities that they have tried to avoid. Significantly, the Government have ensured that the Bill contains important safeguards to ensure that regulations made under it take full account of human rights considerations. This is in addition to the Government’s existing duty to make regulations that are compatible with the European convention on human rights. Furthermore, the power to make regulations altering liability is restricted to reflect, so far as is possible, employment remuneration measures in tax legislation—normally Finance Acts—and is intended to be used only to reflect tax anti-avoidance measures. So when such regulations are made, the House will already have had the chance to consider any relevant human rights issues on backdated tax legislation during the passage of the relevant Finance Bill or other legislation. The Bill also includes a specific provision to ensure that when, for instance, as part of a package of anti-avoidance measures, there is exceptionally a reduction of national insurance liability for past periods, any existing or future benefit entitlement will not be affected. We will publish the draft regulations a minimum of 12 weeks before they are made, so that employers and their representatives will have an opportunity to comment on the technical content of any proposed national insurance changes. Once the Bill has received Royal Assent, any national insurance legislation will have to be laid within 12 months of the corresponding retrospective tax legislation. Furthermore, to ensure that there is adequate parliamentary scrutiny when regulations are made, such regulations will be subject to the affirmative resolution procedure. The powers in the Bill will be used, in the first instance, to make regulations to reflect the employment-related securities anti-avoidance provisions included in schedule 2 to the Finance (No. 2) Act 2005, which received Royal Assent in July 2005, but which took effect from 2 December 2004. In conclusion, the Bill is important and necessary to ensure fairness. It will not affect the vast majority of employers, who do not seek to avoid their tax and national insurance liabilities through avoidance schemes. However, I have explained how, unfortunately, a small minority continue to try to avoid their obligations, at substantial cost to all other taxpayers. The Bill is therefore an appropriate, proportionate and effective response to national insurance avoidance, and I commend it to the House.