National Insurance Contributions and Statutory Payments Bill

---

[back to previous text]

Norman Lamb: It seems as if the Inland Revenue has properly addressed the issue of coercion with regard to share options, and I am interested to hear that it can withdraw its consent if there is evidence of coercion. Is any information available on whether those powers

Column Number: 21

have been used with regard to share options? Is there any evidence of employees complaining of employers improperly coercing them into agreeing to such elections?

Dawn Primarolo: No, there is not, but it may be a question of waiting until the gain is realised and the option arises. As I have stressed, liabilities have for some time been an important issue in discussions between employers and employees. To date, the Inland Revenue has been placed under pressure to extend the list of approved schemes to make things even easier, although there is a substantial cost to the taxpayer. That is not to say that the scheme was not working in a suitable fashion.

We shall keep an eye on the situation, although people are of course not slow to come to the Inland Revenue to offer advice, guidance and suggestions on how to change or develop the scheme. The Inland Revenue has done its level best—it has done well—to strike a balance between holding on to those important principles that operate for the national insurance system as a whole while yet removing in a reasonable way those difficulties that impede the development of another policy, which is widely encouraged by the House and is to the good of employers and employees.

The term ''artificially depressed market value'' is defined in chapter 3A of part 7 of the Income Tax (Earnings and Pensions) Act 2003, as amended by schedule 22 of the Finance Act 2003. I am sure that the hon. Gentleman will remember from our discussions on the 2003 Finance Bill that the creativity of some in the tax planning industry in using even a generous provision to squeeze more out of the system than was intended by Parliament seems to be without limit. It is not simply that share schemes or the transfer of other assets are used as a substitute for earnings in order to get around national insurance or PAYE requirements.

The term is firmly anchored in the operation of the tax system, and it will not be unknown to those who advise on share options or any other form of tax planning to companies or individuals. It is intended to ensure that employers and employees cannot avoid their full tax and national insurance liability by paying earnings in shares, the value of which has been deliberately manipulated to reduce that liability.

Mr. Prisk: I am not necessarily after a specific definition; I am aware of it, although I do not retain it at the forefront of my mind. Nevertheless, I am grateful to the Paymaster General for refreshing my memory. I wish to make a broader point.

It would be useful if such definitions were to be included in the explanatory notes. Being told that an explanation can be found in this or that Act does not always help. I do not ask for a definition of every phrase or word, although I am sure that the right hon. Lady and the Committee will understand that it can be quite helpful, particularly for hon. Members who come fresh to the subject. Rather, I wonder whether such a commitment could be made for future legislation.

Column Number: 22

Dawn Primarolo: I certainly take the point. That could be said of just about everything that crosses my desk, whether it be an emergency announcement, the closing of an avoidance scheme or draft legislation. It is a sad fact of everyday life that tax legislation needs anti-avoidance provisions, because the ability to manipulate value in order to reduce liability is widely exercised.

The phrase is a longer description of the intent of Parliament. Anyone reading the Bill can clearly see that we mean the value of the shares at the point of transfer, but a better definition is needed. Nevertheless, I am happy to consider the hon. Gentleman's suggestion.

The hon. Member for Hertford and Stortford said that page 5 of the regulatory impact assessment shows that we expect about 500 applications a year for new joint elections. That is based on previous national insurance elections; we are not able to do more at the moment. We have been told by employers that there is a restriction in the barrier.

Norman Lamb: I also raised the issue of compliance mechanisms. The regulatory impact assessment refers to the fact that compliance mechanisms have been set up to ensure that the employer has a vested interest in the employee's meeting the liability. It then says that the employer would not be able to make another joint election. Is that the compliance mechanism, or is it broader than that? I want to understand any difference.

Dawn Primarolo: I am sorry; I thought that I had dealt with that. The mechanism is broader than that. I was trying to demonstrate that that is one possibility, in that the text of the election must set out the arrangements for recovery from the employee. The Inland Revenue must be satisfied that those arrangements are robust and will work. They are the employer's responsibility. If they do not work, the Revenue's recourse is to the employer. For those operating substantial schemes, having their election suspended would be counter not only to their up-front investment in providing for the smooth operation of the scheme, as has been pointed out, but to their realising all the benefits that they would like. The crucial point is that the election itself must clearly lay out how the recovery arrangements will work, and the Inland Revenue must be satisfied that they will work in all circumstances.

The debate has been very helpful and detailed. I hope that I have dealt with all the points from both hon. Gentlemen.

Question put and agreed to.

Clause 3 ordered to stand part of the Bill.

Clause 4

Agreements and joint elections: Northern Ireland

Question proposed, That the clause stand part of the Bill.

Column Number: 23

Dawn Primarolo: Clause 4 mirrors clause 3, but for Northern Ireland. I hope that I have covered all the major points, which will apply equally to Northern Ireland.

Question put and agreed to.

Clause 4 ordered to stand part of the Bill.

Clause 5

Recovery of contributions, etc: Great Britain

Question proposed, That the clause stand part of the Bill.

Dawn Primarolo: Clause 5 aligns the periods of notice required for distraint action to recover national insurance contribution debt in England and Wales, and the application for summary warrant in Scotland, with those that apply for tax debt.

In this part of the Bill, we turn to measures concerning the recovery of NICs debt. Clause 5, and clause 6 for Northern Ireland, deal with the small minority—3 per cent.—of NICs that are not collected with tax. They are mainly the flat-rate class 2 contributions that are paid by the self-employed. The purpose of the clause is to align the Inland Revenue's procedures for recovering that type of NIC debt with those for recovering tax debts. Tax legislation and procedures have applied to debt recovery contributions collected with tax since the mid 1970s.

Perhaps I should briefly explain why we need the changes. First, given that all tax and contributions debts are recoverable by the Inland Revenue, there is no logic in having separate rules for a small proportion of cases. Secondly, situations can and do arise in which a person has both a tax debt and a class 2 contribution debt. As the legislation stands, it is not practicable to deal with both debts in a single action.

11 am

The current provisions were inherited from the Contributions Agency in 1999. Although the Social Security Contributions (Transfer of Functions, etc.) Act 1999 gave the Inland Revenue responsibility for recovering such debt, it did not change the legislative mechanism for the recovery action.

The changes are relatively straightforward. The period of notice for distraint action in England and Wales is changed from 30 days to seven, in line with the procedures for recovering tax debt and accepted good practice. The period of notice for application for a summary warrant in Scotland is changed from 30 days to 14, in line with the tax legislation and the procedures under the Debt Arrangement and Attachment (Scotland) Act 2002. The 30-day notice periods prescribed are out of line with tax procedure and legislation, and with best practice on the recovery of general debt.

Column Number: 24

Distraint action involves the seizure of goods for sale at auction if the debt is not settled. Where a debtor is determined, for whatever reason, not to pay, a 30-day notice of the action provides a more than ample opportunity to dispose of valuable goods that might otherwise be seized.

The clause makes two changes. It clarifies the legislation regarding the recovery of amounts due under personal liability notices and it provides for the alignment of the tax and contributions debt recovery provisions by regulations. Personal liability notices can be issued in respect of unpaid national insurance contributions to the former directors of companies that have been wound up. For the avoidance of doubt, the clause specifies that debts arising from personal liability notices are to be recovered in the same manner as the class 1 contributions to which the notices relate.

The final provision in the clause is a regulation-making power to allow tax legislation to apply to the recovery of such contributions. An equivalent power has existed since the mid-1970s for contributions collected with tax. This is a future-proofing provision designed to prevent misalignment from arising. It is necessary because most national insurance matters are outside the scope of the Finance Bill. Thus, if a future Finance Bill were to change the provisions governing the recovery of tax debt that needed to be mirrored in such contributions, separate provision would have to be made in a programme Bill. That would inevitably be delayed, as space in any Government's legislative programme is scarce.

I am happy to answer questions from members of the Committee, but I hope that they accept that it is sensible for employers to have one procedure, with which they are familiar, for the recovery of debt across all tax debts. The provision brings national insurance debt in line with tax debt, making a single, recoverable action. I hope that the Committee accepts the clause.

 

---

Prepared 13 January 2004