Social Security, Occupational Pension Schemes and Statutory Payments (Consequential Provisions) Regulations 2007

rose to move, That the Grand Committee do report to the House that it has considered the Social Security, Occupational Pension Schemes and Statutory Payments (Consequential Provisions) Regulations 2007. The noble Lord said: In moving the first set of social security regulations I shall speak to the other two sets grouped with it. In summary, the three sets of regulations provide for the application of a backdated national insurance contribution liability on the amount of employment income which is charged to tax by the provisions of Schedule 2 to the Finance Act (No. 2) 2005 and Section 92 of the Finance Act 2006. They also put in place rules regarding the recovery and collection of that national insurance contribution liability and ensure that those backdated earnings count for contributory benefit, occupational and statutory payment purposes. All the regulations apply to both Great Britain and Northern Ireland, and perhaps it would be helpful if I put the regulations into context by giving a short summary of the background to the National Insurance Contributions Act 2006. The Paymaster General made a statement in the 2004 Pre-Budget Report that the Government were determined to ensure that all employees and employers pay the proper amount of tax and national insurance contributions on the rewards of employment, however those rewards are delivered, and on becoming aware of arrangements which were intended to frustrate this intention, we would introduce legislation to close them down where necessary from the date of the statement, 2 December 2004. To allow national insurance contributions legislation to be backdated to mirror retrospective tax changes, a National Insurance Contributions Bill was introduced on 11 October 2005, which became the National Insurance Contributions Act 2006 following Royal Assent on 30 March of that year. The powers in the National Insurance Contributions Act 2006 enable the Government to deal effectively with any tax and national insurance contributions avoidance arrangements that emerge in the future which are designed to frustrate the intention that employers and employees should pay the proper amount of national insurance contributions on the rewards of employment. The Social Security (Contributions) (Amendment No. 2) Regulations 2007 amend the principal Social Security (Contributions) Regulations 2001 to apply a backdated national insurance contributions liability on employment income from employment-related securities. Provisions in Schedule 2 to the Finance Act (No. 2) 2005 and Section 92 of the Finance Act 2006 apply a tax charge to income from employment-related securities and securities options used in avoidance arrangements, backdated to 2 December 2004. The powers in the National Insurance Contributions Act 2006, being used here for the first time, allow for making regulations to apply a national insurance contributions liability to the same income, backdated to 2 December 2004. The Social Security Contributions (Consequential Provisions) Regulations 2007 make provision to enable the recording, collection and recovery of the backdated national insurance contributions liability. Employers will be required to amend the pay records of those employees in receipt of retrospectively treated employment income for the years in which the income was actually received, applying the rate of national insurance contributions in force for the year in question. For national insurance contributions arising by virtue of the Social Security (Contributions) (Amendment No. 2) Regulations 2007, employers will have until 19 June 2007 to pay to Her Majesty’s Revenue and Customs the additional contributions due. Before 20 May 2008, employers must submit a separate return for each relevant year, setting out each affected employee’s amended earnings and national insurance contributions. Where additional national insurance contributions due include primary contributions, employers will be liable to recover those contributions from the affected employees’ earnings during 2007-08 and 2008-09. These social security regulations mirror the collection and recovery of tax provisions. The Income Tax (Pay as You Earn) (Amendment) Regulations 2007 similarly require employers to amend the pay records of those employees in receipt of retrospectively treated employment income for the years in which the income was actually received, applying the tax code or higher rate of tax in force for the year in question. Payment of the tax will also be due by 19 June 2007 and a return for each relevant year, before 20 May 2008. If employers are unable to recover the additional tax due from employees’ pay in the period ending5 May 2007, by virtue of existing provisions in the Income Tax (Earnings and Pensions) Act 2003, as amended by the Finance Act 2006, if an affected employee does not make good to their employer within 90 days of 6 April 2007 the tax due and paid by their employer, that sum will become additional taxable income of the employee in 2007-08. Thirdly, the Social Security, Occupational Pensions Schemes and Statutory Payments (Consequential Provisions) Regulations 2007 ensure that payments subject to backdated national insurance contributions liability also count for contributory benefits, occupational pension and statutory payment purposes in order that employees do not lose out on their entitlements had the payments been earnings at the time they were paid. These regulations and the collection regulations I mentioned earlier also provide the framework for dealing with any future payments which are retrospectively treated as earnings and not just those brought into liability by the Social Security (Contributions) (Amendment No. 2) Regulations 2007. In keeping with the commitments given during the passage of the Bill last year, the regulations were published first in draft on 14 November 2005 and then on 16 August 2006 for comment. In general, the comments were helpful but did not suggest any substantial drafting issues. HMRC has published on its website a summary of the comments and responses. The majority of the comments focused on the national insurance contributions avoidance disclosure rules, which were also published at the same time. Those regulations are made under powers in the Act but are subject to negative resolution procedure. The comments received were exclusively points of fine detail and raised no issues of policy or principle. The Government are committed to deterring future avoidance activity and the regulations, as I mentioned earlier, are the first use of the powers in the National Insurance Contributions Act 2006. Accordingly, I commend these regulations to the House. I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Social Security, Occupational Pension Schemes and Statutory Payments (Consequential Provisions) Regulations 2007.—[Lord Davies of Oldham.]