National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Jim Cunningham Excerpts

2nd reading: House of Commons & Ways and Means resolution: House of Commons
Tuesday 30th April 2019 Commons Chamber

[Kirsty Blackman (Aberdeen North) (SNP)]

Let me start by saying that I agree with almost everything that the Labour shadow Minister said. I will not make any cricket puns because I do not know anything about cricket—I will just stay out of that one—but I will make a point of mentioning that Aberdeen is obviously the greatest football team and should be mentioned first in any discussion of sporting prowess.

First, on the issues raised by the Labour shadow Minister about the Bill process, I share his concerns about the fact that we were told we would be getting the Bill before it had been introduced to this place. That is a real concern. Perhaps the Treasury drew the short straw again, and when the Government announced that they would have a Second Reading of a Bill but panicked because they could not work out which Second Reading it should be, they scrambled around and said to the Treasury, “You guys must have something”, and the poor Treasury Ministers were dragged here to present this Bill.

The serious point is that this is a highly technical Bill and we have had a very short time to look through it. I looked through the explanatory notes, as I am wont to do in these circumstances, but they do not talk about the amount of consultation that was done or the number of people who contributed to that consultation. I am aware that perhaps there are tax information and impact notes that do talk about the amount of consultation that was done, but it would have been useful to have that information in the explanatory notes so that we could be clear about how many individuals and organisations had come to the Treasury and said, “These are the good things and the bad things about the Bill.” That would have put us in a much more informed position, although I am sure we will get into the meat of that discussion in Committee.

On the intention behind the Bill, it was announced some time ago that there would be changes in this policy area and it has taken a while for the Bill to come through. Why has it come through now? If it has been intended for some time, why has it taken so long for the Bill to come before the House? Was it just that the Treasury drew the short straw, as I said, and had to bring a Bill to the House today and just had to find something? It would be useful to know something about the timing for the Bill, why it has come along now and what the logic behind that is.

I have a couple of questions on some of the specific things mentioned in the Bill. In introducing it, the Minister said that if there is a contractual obligation that there will be a testimonial, that will be treated differently, but also talked about cases in which there is an expectation that there will be a testimonial, which to me does not mean the same thing as a contractual obligation. I am not clear what the Treasury means by an expectation of a testimonial. Somebody could score a goal in every single club game they have ever played, but that does not mean they have a contractual testimonial obligation. I would expect, though, that that person would probably get a testimonial for being such a big part of their football club. Is that what is meant by “expectation”? If not, will the Treasury confirm exactly what is meant by that word in the Bill?

On the amounts for testimonials, the explanatory notes say:

“The new Class 1A liability does not affect individuals as it is to be paid by the controller of the sporting testimonial.”

That seems a bit disingenuous to me, because although it does not affect the individual’s liability, it does affect the amount of money they will get. Has the Treasury done any maths on how much less sporting individuals will get from their testimonials because this liability might have to be taken off before the money is handed over to them? It seems to me that, rather than being something quite removed, it will have a direct impact on individuals.

The Chartered Institute of Taxation got in touch with me with queries about some things in the Bill. On the £100,000 limit, the institute said:

“The intention is that the NICs rules will replicate this and only impose Class 1A NICs on the amount chargeable to income tax. We have reviewed the NICs Bill and it charges to Class 1A the amount that is ‘general earnings’. We assume this means the amount above £100,000…but it is not clear. The termination payments legislation refers specifically to the amount chargeable under the Income Tax (Earnings & Pensions) Act 2003. It is surprising that the same approach has not been adopted here.”

Why has the Treasury taken a different approach to the drafting of this legislation to that taken to the drafting of the termination payments legislation that was passed previously?

[Mr Jim Cunningham (Coventry South) (Lab)]

There is another question, about the definition of who is an employee and who is an employer. There have been various examples in the courts of people being treated as employers when they were actually employees. There is still a bit of obscurity about that when it comes to tax, which creates a lot of difficulty for people.

[Kirsty Blackman]

I absolutely agree with the hon. Gentleman’s point. When in a moment I talk about the termination awards for individuals, I will discuss that specific issue.

On termination awards for employees, the explanatory notes say:

“The new Class 1A liability does not affect individuals as it is paid by the employer.”

The reality is that, again, it does affect individuals, because they will receive less money. If the employer is going to give out a pot of £40,000, they will be giving some of that to the Exchequer, instead of to the individual as they currently would. The details show that the Exchequer expects to receive £210 million for 2023-24 as a result of the change; do Ministers expect individuals to receive £210 million less and that that money will go to the Exchequer instead, or do they expect employers magically to find some more money and to continue to pay employees who are leaving their organisation the same amount as before, while paying a slice to the Treasury as well? It would be useful to know how much less the Treasury expects individuals to receive as a result of the change, not just how much the Treasury expects to receive.

The NICs change is the only example of a class 1A charge on cash earnings that the Chartered Institute of Taxation could find. Why has the Treasury decided to take the route it has chosen? Class 1A contributions are normally paid in respect of things such as benefits in kind, rather than on cash earnings. The Bill seems to me to make a fairly fundamental change to how NICs are treated and to the different classes of NICs. It would be useful to know why the Treasury has decided to make this change. Is it part of some sort of long-term plan to use class 1A charges on cash in other circumstances? Or will they continue to be used mainly on benefits in kind?

It seems to me that it is a bit of an ad hoc change. Perhaps the Treasury is putting forward some grand plan, or perhaps it is just a small change. I have asked similar questions about the recent changes to the Financial Conduct Authority and the Bank of England. It seems that a lot of small ad hoc changes have been coming through with no blueprint for where the Treasury expects to be at the end of the process and what it expects the system to look like at that point. It would be useful to know more about that.

I would like to know about a few main things. On the £100,000 for sporting testimonials, is the Bill intended to operate in the way things operated under the previous legislation on sporting testimonials, but the language in the Bill is just unintentionally a bit woollier? On employees, we have that issue with the class 1A charge; does the Treasury intend to make further changes to class 1A contributions, or is this the last change it expects to make? We expect secondary legislation to come through as a result of the Bill, to tighten things up and make further changes in future, but when is that expected to come—in this Session, or quite close to the Bill’s implementation in 2020? If it is the latter and the secondary legislation does not come through in enough time, it might be difficult for employers to make sensible decisions.