(9 years, 11 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read the Third time.
We have reached the final stage of the House’s deliberations on the National Insurance Contributions Bill, and it is worth noting the broad, if not necessarily vociferous, support for the Bill across the House. The hon. Member for Birmingham, Ladywood (Shabana Mahmood) has been vociferous and meticulous in her scrutiny of it, and I also thank external interested parties that have contributed to the consultation and to our deliberations. The Bill will make it easier for the self-employed to comply with their national insurance contributions obligations, while also making NIC avoidance harder.
Let me remind the House of the provisions in the Bill and what it seeks to achieve. Broadly, the Bill contains four measures: simplifying national insurance contributions paid by the self-employed; accelerating the payment to the Exchequer of NICs in dispute in avoidance cases and providing for the issue of follower notices where the scheme or arrangements have been shown to fail in another party’s litigation; applying new information powers and penalties to promoters of avoidance schemes; and introducing a targeted anti-avoidance rule—TAAR—to prevent people from circumventing new legislation tackling avoidance involving employment intermediaries and offshore employers.
At Budget 2014, the Chancellor announced that the Government intend to simplify the NICs collection process for the self-employed, who currently have to operate two different processes for two separate classes of NICs. This followed a 2012 recommendation by the Office of Tax Simplification and a consultation in 2013.
Two separate collection methods for class 2 and class 4 NICs cause confusion and extra work for both the self-employed and HMRC. The objective behind this measure is to modernise the way class 2 NICs are assessed and collected, making the system simpler and more straightforward and reducing administrative burdens on the self-employed. Class 2 NICs are currently collected via a flat rate charge of £2.75 per week paid through six-monthly billing or by direct debit, while class 4 NICs are a percentage charge on profits—of 9% between the lower and upper profits limit and 2% above the upper profits limit—paid through self-assessment alongside income tax.
The aim of clauses 1 and 2 and schedule 1 is to change the way in which class 2 NICs are structured; change the means by which class 2 NICs are collected by moving their collection into self-assessment, so that they can be collected alongside class 4 NICs and income tax; change the means by which class 2 NICs are enforced with changes to associated appeal rights to broadly mirror those for class 4 NICs and income tax; and make consequential changes to legislation relating to maternity allowance to allow women to continue to become eligible for it post-reform. These changes are proposed to take effect for the 2015-16 tax year onwards so that the collection of class 2 NICs under self-assessment will be from 6 April 2016. I wish to draw particular attention to the tax information and impact note published by HMRC about this measure. This indicates a very welcome net administrative burden reduction to the self-employed of £74 million over five years as a result of these reforms.
The provisions that deal with accelerating the payment to the Exchequer of amounts of NICs in dispute in avoidance cases also include providing for the issue of follower notices in relevant cases when the scheme or arrangement has been shown to fail in another party’s litigation. These provisions are contained in clauses 3 and 4 and schedule 2. The provisions on follower notices and accelerated payments in avoidance cases broadly follow, for NICs, new powers that are included in the Finance Act 2014 which allow HMRC to issue a notice—a follower notice—to taxpayers who have used avoidance schemes that have failed before the courts in another party’s litigation.
Sir Greg Knight (East Yorkshire) (Con)
On the subject of avoidance, when does my hon. Friend expect his Department to review the scope of the avoidance measures—after the Bill becomes an Act, as I am sure it will—bearing in mind human ingenuity?
Mr Gauke
The broader point is the fact that the Treasury and HMRC constantly review measures to deal with avoidance. My right hon. Friend is right to say that, human ingenuity being what it is, we have to be constantly vigilant, and the Government have closed some 40 loopholes over the course of this Parliament. We will keep the specific measures in the Bill, and more broadly the measures we have taken on accelerated payments and follower notices, under review, but we believe that the measures that we have taken to accelerate payments so that those involved in tax avoidance schemes are no longer able to benefit from a cash flow advantage will have a dramatic effect on the flow of tax avoidance through tax avoidance schemes. We are already seeing indications that fewer schemes are being marketed and fewer disclosures are being made under the provisions on the disclosure of tax avoidance schemes. Every indication suggests that this is a diminishing issue, but there is no place for complacency. The Government will continue to endeavour to take appropriate steps to deal with those who are seeking to defy the spirit of the law or make an interpretation of the law that has little justification but can involve HMRC in extended litigation.
I emphasise that the provisions in the Bill and the Finance Act 2014 are estimated to raise £5 billion in tax and NICs for the Exchequer. The House may find it helpful if I explain that a follower notice sets out HMRC’s view that a judicial decision in another case is directly relevant and that those who receive the notice should settle their disputes. If the taxpayer does not settle in response to the notice, they will face a tax-geared penalty if they are unable to show that their case is materially different from the other party’s litigation, or if they did not have reasonable grounds to continue the dispute.
An accelerated payment may be required from taxpayers in the following circumstances: where a follower notice has been issued and the taxpayer decides not to settle their dispute; where taxpayers are involved in schemes subject to disclosure under the disclosure of tax avoidance schemes or DOTAS rules: and where taxpayers have used arrangements that HMRC decides to counteract under the general anti-abuse rule or GAAR. For both follower notices and accelerated payments, taxpayers will have 90 days to make representations. There is no formal right of appeal against the notices or payments, but taxpayers can appeal any penalties. These measures are expected to lead to the issue of payment notices to around 43,000 taxpayers involved in avoidance schemes currently under dispute with HMRC over the period to the end of March 2016.
The provisions that apply new information powers and penalties to the highest risk promoters of tax avoidance schemes are also contained in clauses 3 and 4 and schedule 2. Hon. Members may be aware that I mentioned on Second Reading that the measure on promoters of avoidance schemes was first announced in Budget 2013 and the Government’s intention was to extend the measure to NICs at the earliest opportunity. This Bill affords that opportunity.
The Finance Act 2014 included legislation that allows HMRC to issue conduct notices to promoters of tax avoidance schemes and to monitor promoters who breach a conduct notice. This Bill applies the tax legislation to NICs so that the legislation operates as one unified scheme that covers tax and NICs. Monitored promoters will be subject to new information powers and penalties which will also apply to intermediaries that continue to represent them after the monitoring commences. The monitored promoter will be named by HMRC—the naming details will include information on why the conduct notice was breached—and required to inform its clients that it is being monitored by HMRC. Clients of monitored promoters will also be subject to certain obligations, which have a penalty for non-compliance, and extended time limits for assessments.
Other provisions apply a new targeted anti-avoidance rule to prevent people from circumventing new legislation, tackling avoidance involving employment intermediaries. The proposed TAAR is contained in clause 5. On Second Reading, I mentioned that the National Insurance Contributions Act 2014 strengthened existing legislation in respect of offshore employment intermediaries. That measure was specifically intended to address the non-payment of employer’s national insurance in the oil and gas industry involving the placement outside the UK of the employer of oil and gas workers who are working on the UK continental shelf.
The temporary labour market is quick to react to any legislative changes and to find new convoluted ways to reduce the amount of income tax and NICs that it would otherwise be liable to pay. Interested parties have indicated to HMRC that intermediaries involved in the facilitation of false self-employment may set up avoidance vehicles involving convoluted structures specifically designed to circumvent the legislation introduced in the National Insurance Contributions Act 2014. To dissuade such intermediaries the Bill includes a TAAR that would be similar to the tax TAAR included in the Finance Act 2014 for the same purpose—to deter NICs avoidance. The TAAR focuses on the motive for setting up the arrangements, namely the avoidance of NICs, and what they achieve—whether they result in less national insurance contributions being paid. In order that the tax and NICs TAARs operate as one, the tax TAAR and the corresponding provisions of the NICs TAAR will both take effect from 6 April 2014.
In conclusion, this is an important and necessary Bill. The modernisation of the way that class 2 NICs are assessed and collected will make the system simpler and more straightforward and will reduce administrative burdens on the self-employed. The Bill also includes a package of measures aimed at making activity that attempts to reduce the amount of NICs payable to the Exchequer harder to accomplish.
I thank hon. Members who participated in the debates on the Floor of the House as well as in Committee. The Bill is good for the self-employed and it makes NICs avoidance harder. I commend the Bill to the House.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
I would like to think that the Minister and I are always vociferous and meticulous in our deliberations on finance and taxation matters, and that we have both been efficient in our deliberations on the Bill. That is because, as the Minister explained, this is a short Bill which aims to simplify the administrative process of paying class 2 national insurance contributions for the self-employed. It applies measures from this year’s Finance Bill, now the Finance Act 2014, to NICs, and introduces a targeted anti-avoidance rule, a so-called TAAR, to tackle disguised self-employment made possible through employment intermediaries and offshore employers. We have supported the Bill throughout its previous stages in the House and will do so today.
Until now, as the Minister explained, payments of class 2 and class 4 NICs by the self-employed have had to be made separately. When the Office of Tax Simplification looked at these matters in 2012, it proposed bringing class 2 NICs within self-assessment, and suggested that this change would bring administrative benefits to self-employed persons and businesses. In July 2013, HMRC published a consultation document in which it noted that the present system places significant burdens on small businesses, and that although class 2 NICs accounted for less than 0.3% of the £102 billion or so of NICs collected by HMRC in 2012-13, they accounted for more than 40% of national insurance-related telephone calls to HMRC and the resulting processing work. The Bill therefore changes the liability for class 2 NICs so that it arises at the end of the tax year and not weekly, as now, and moves class 2 NICs into self-assessment, so that self-employed people can deal with their class 2 NICs together with their income tax and class 4 NICs.
We support the aim of making the system easier for self-employed people and reducing the administrative burden caused by the current separate systems for the collection of class 4 and class 2 NICs. Almost one person in six is self-employed, so this is a significant issue affecting a large number of people. Making the system easier to navigate is therefore welcome and of genuine practical benefit for the self-employed.
A number of specific issues were raised by stakeholder groups regarding eligibility for maternity allowance and the impact of this simplification on people claiming universal credit. Those are issues that we raised on Second Reading, which the Minister dealt with in Committee. We were also able to take evidence from expert witnesses who gave evidence to the Committee. We had some useful clarification and reassurance from the Minister on those points, which has dealt with the concerns raised. We are grateful for that.
We noted in Committee that communication of these changes to the people affected by them will be very important, a point which the Minister acknowledged. We were concerned particularly about people who might be described as digitally excluded. It is of course easier for the Government, and it is a responsible time and expense-saving mechanism, to put lots of advice on the internet, but there are groups, perhaps especially those who are self-employed and who may ultimately be reliant on universal credit, who might be described as digitally excluded, and it is important that they can access information about how the changes may impact on them. The Minister gave assurances to the Committee that those matters were in hand. We will continue to scrutinise this aspect as the Bill progresses and becomes law.
As the Minister explained, the Bill also extends provisions relating to follower notices, accelerated payment notices and measures to tackle high-risk promoters of tax avoidance schemes that were passed in the Finance Act 2014 in relation to income tax. It applies those rules to NICs as well. As the Minister noted, we have had extensive debate on these measures, primarily during the passage of the Finance Bill 2014. In Committee the Minister provided a helpful update on how the measures relating to income tax are bedding in.
We heard encouraging evidence from expert witnesses that these measures were already having a positive behavioural impact on the way in which individuals approached their taxation affairs, and that the measures were preventing people from getting involved in schemes that they might previously have taken a chance on. We welcome that. We will continue to scrutinise the impact of these measures, and in particular the effectiveness of HMRC’s internal governance mechanisms in relation to follower notices. These are important changes and they continue to have our support.
Clause 5 introduces a new TAAR to cover the payment of national insurance contributions, which sits alongside the provisions in this year’s Finance Act aimed at tackling employment intermediaries who falsely label workers as self-employed to reduce their tax liabilities. For workers who are falsely badged as self-employed, particularly for those who do not know that that is the case, which has happened on an alarmingly regular basis, the effect is that they are not eligible for many of the benefits available to employed earners, such as holiday and sickness pay.
This year’s Finance Act amended legislation directly to address the issue in relation to the payment of income tax. A worker will now be designated as an employee if they are under the supervision, direction or control of someone else, and in that case they must be paid through PAYE, rather than as a self-employed worker. That is a change from the previous designation, under which a worker is deemed to be an employee if they provide their services personally. It was found by HMRC that many intermediaries were able to exploit that test by claiming that there was no obligation for the worker to provide their services personally. To get around that, a clause was often inserted into a worker’s contract stating that they could send somebody else to do their work, even though in reality the employer wanted that specific worker.
Bob Stewart (Beckenham) (Con)
I seek clarification from the Minister or the hon. Lady, who understand these things well. A part-time worker has to pay national insurance contributions, and so does the employer. I was a little puzzled that that might not be the case, but it is, is it not?
Shabana Mahmood
I am grateful for the question. If workers are above the threshold which is in place for the paying of national insurance contributions, the usual rules apply. I am sorry if I confused the hon. Gentleman; I was talking about self-employed people, which is a particular case in the context of the Bill. Clause 5, as I said, introduces a targeted anti-avoidance rule to prevent a type of abuse that has been occurring through employment intermediaries.
The role of the TAAR envisaged in the Bill is to prevent the circumventing of the rules so that workers who would be employed earners if it were not for the intermediary arrangements are treated as employed earners. That will allow HMRC to consider both the motive for setting up such an arrangement, including whether it was set up to avoid NICs, and what was achieved, including whether it resulted in less NICs being paid. As I said, the problem of bogus self-employment is widespread and complex. We heard evidence on that, particularly in Committee where one witness said that there were ways in which companies were trying to avoid paying national insurance contributions. The Minister helpfully told the Committee that he and his officials were already looking into that.
Taking action in this area is difficult. If often feels as if the Government of the day are playing catch-up with companies intent on trying to find ways of getting around the rules, but tackling bogus self-employment is necessary for parties of all political persuasions to protect revenues to the Exchequer. The Minister and I may occasionally disagree on the emphasis and priorities for action in dealing with false self-employment, but the TAAR introduced by clause 5 is a useful addition to the Government’s armoury for tackling this type of tax avoidance, and we support that measure.
Question put and agreed to.
Bill accordingly read the Third time and passed.