National Insurance Contributions Bill

Shabana Mahmood Excerpts

Tuesday 11th November 2014 Commons Chamber

[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.