National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill (First sitting)

Debate between Grahame Morris and Anneliese Dodds

Tuesday 14th May 2019 Public Bill Committees

[Anneliese Dodds]

Q Thank you; the point is clear. I appreciate that clarification.

I have questions about testimonials, as does the SNP spokesperson, the hon. Member for Aberdeen North, but I am sure we will come back to them later. My final question for now is about the real-time approach to payment of NICs. What kind of communication exercise will be undertaken with those who may be affected? I appreciate Mr Nayyar’s comments about ongoing discussions with software providers and others, but concerns have been expressed that this remains something that could be viewed as an administrative burden. The view is that, currently, the system is not set up to accept those payments. Can we have an indication of the communications that will be provided to ensure businesses are aware of this and not concerning themselves unnecessarily?

Raj Nayyar: I will take this. HMRC has regular stakeholder events with tax professionals and software providers in which we will be communicating how this will happen. We will be issuing guidance in due course to explain what we would like employers to do and what they need to be aware of. We will be supplying specifications for third-party software providers about what changes they need to make to their software, so all of that will be ongoing.

Robert Jenrick: To add to that, the purpose of bringing the Bill forward at this moment is that, if we can secure passage through Parliament and gain Royal Assent, there will be good time for that communication and for employers and software providers and so on to make the necessary changes before the start of the next tax year.

[Grahame Morris (Easington) (Lab)]

Q It is a privilege to serve on the Committee under your chairmanship, Ms McDonagh. I seek some clarification from the Minister in respect of some of his earlier responses. When explaining why the Bill has been brought forward, you mentioned clarity, fairness, consistency and international comparators, but it is also an issue of closing a tax loophole, is it not? Can you clarify the particular point that was made on Second Reading that terminations were

“subject to different income tax and national insurance treatment”

and that had allowed a

“small number of well-advised employers to disguise final payments as compensatory termination awards that benefit from a national insurance charge exemption.”—[Official Report, 30 April 2019; Vol. 659, c. 153-4.]

Do some well-informed employers see this as a means of avoiding paying tax and a way of giving a bonus to an employee on a short-term contract, thus also avoiding PAYE income tax?

Robert Jenrick: Essentially, yes. We have numerous examples of this. Raj, will you give some of them?

Raj Nayyar: Common examples we have seen are when an employee may have been due payment in lieu of notice, but they reach an agreement with their employer whereby the contract is terminated and, instead, they get a compensation award for damages for breach of that contract. That is taxable over £30,000 but it would have been entirely NICs-free. The Bill disincentivises that kind of manipulation by the very well advised.

Robert Jenrick: Choosing only to apply employer’s national insurance disincentivises the employer from taking that action, without doing what one might have done by going further and creating a further cost to the employee.