House of Lords - Explanatory Note
Social Security Contributions (Transfer Of Functions, Etc.) Bill [H.L.] [H.L.] - continued          House of Lords

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COMMENTARY ON CLAUSES

PART I

Clause 1 and Schedule 1- transfer of operational functions to the Inland Revenue

45.     Clause 1 introduces Schedule 1 which transfers the operational functions currently carried out by the Contributions Agency on behalf of the Secretary of State. These functions in relation to NICs, SSP, SMP and contracting-out matters will from the day appointed for the operational transfer, be carried out by the Inland Revenue. Most of the changes in Schedule 1 substitute "Inland Revenue" for "Secretary of State".

46.     Clause 1 and Schedule 2 also provide for the transfer of functions. Functions conferred on the Secretary of State in subordinate legislation made under provisions listed in Schedule 2 are also transferred to the Inland Revenue.

Schedule 1

Social Security Act 1986

47.     Paragraphs 1 and 2 amend legislation relating to the payment of incentives to contracted-out occupational pension schemes in the Social Security Act 1986 by substituting "Commissioners of the Inland Revenue" for "Secretary of State" as appropriate.

Income and Corporation Taxes Act 1988 (ICTA)

48.     Paragraph 3 amends section 649 ICTA, which provides for the tax treatment of DSS payments into personal pension schemes, to reflect the transfer from the Secretary of State to the Inland Revenue of the functions of making such payments.

Social Security Contributions and Benefits Act 1992 (CBA)

49.     Paragraphs 4 to 8, 11, 12, 15 to 18 amend references in relevant sections of CBA to reflect the transfer of NICs, SSP and SMP functions from the Secretary of State to the Inland Revenue.

NB: Sections 1, 17 and 18 CBA and paragraphs 4, 6, 7 and 8 of Schedule 1 CBA are also amended by Schedule 3 to this Bill.

50.     Paragraphs 9, 10, 13 and 14 stipulate that regulations made under powers in sections 161, 162, 170 and 171 CBA (special classes - e.g. servicemen and mariners) shall be made by the Secretary of State in concurrence with the Treasury.

51.     Paragraph 16 states that the Secretary of State shall make any regulations under the power in Schedule 1, paragraph 6(5) CBA in concurrence with the Inland Revenue. This follows the precedent in the regulation-making powers for Class 4 NICs, also collected alongside income tax, for ensuring an operational input to DSS policy changes.

52.     Paragraph 19 inserts a new paragraph 1A into Schedule 11 CBA which requires regulations under paragraph 1 of that Schedule to be made with the concurrence of the Treasury.

Social Security Administration Act 1992 (SSAA)

53.     Paragraph 20 amends s.116 (legal proceedings) so that an officer of the Revenue, not DSS, may conduct proceedings in relation to s.114 (fraudulent evasion of NICs).

54.     Paragraphs 21 to 23 transfer functions relating to recovery of unpaid contributions from the Secretary of State to the Inland Revenue.

55.     Paragraphs 24 to 26 state that the Secretary of State shall make any regulations under powers in s.125, 130 and 132 relating to SSP and SMP in concurrence with the Inland Revenue.

56.     Paragraphs 27 to 29 amend sections 162, 163 and 165 SSAA to reflect the transfer of functions relating to the NIF.

NB: Sections 162, 163 and 165 are also amended by Schedule 3 to this Bill.

57.     Paragraph 30 allows applications for a national insurance number to continue to be made through the contributions route or the benefits route as appropriate.

58.     Paragraph 31 inserts a definition of "Inland Revenue" into the SSAA. It means "the Commissioners of Inland Revenue".

Pension Schemes Act 1993

59.     Paragraphs 32 to 62 make amendments to relevant sections of the Pension Schemes Act 1993 to reflect the transfer of operational functions for the contracting-out of SERPS by way of rebates of NICs from the Secretary of State to the Inland Revenue.

Statutory Sick Pay Act 1994

60.     Paragraph 63 adds the Inland Revenue to the provisions of section 5(3) of the Statutory Sick Pay Act 1994 to ensure that any expenses incurred as a consequence of the provisions of that Act may be paid out of money provided by Parliament.

Jobseekers Act 1995

61.     Paragraphs 64 and 65 make amendments to relevant sections of the Jobseekers Act 1995 to reflect the transfer of functions from the Secretary of State to the Inland Revenue.

NB: Section 27 of the Jobseekers Act is also amended by Schedule 3 to this Bill.

Pensions Act 1995

62.     Paragraphs 66 and 67 make amendments to sections 107 and 108 of the Pensions Act 1995 to reflect the transfer of functions from the Secretary of State to the Inland Revenue.

Schedule 2

63.     Schedule 2 lists specific functions under secondary legislation that are to be transferred to the Inland Revenue.

Clause 2 and Schedule 3 - transfer of policy functions to the Treasury and Inland Revenue.

64.     This clause effects the transfer to Treasury Ministers and the Inland Revenue of policy functions of the Secretary of State in relation to NICs and the NIF. The transfers are to come into effect from an appointed day.

65.     In tax legislation, regulation-making functions are generally reserved to the Treasury where they affect matters such as the existence or size of a tax liability. Regulation-making powers relating to administrative functions are usually sent to the Board of Inland Revenue. This Bill proposes the same general divide in relation to NICs. So the regulations relating to policy functions transferred would be made by the Treasury, although the Inland Revenue would be responsible both for advising Ministers on policy and for its operational implementation.

Schedule 3

Social Security Contributions and Benefits Act 1992 (CBA)

66.     Paragraph 1 transfers to the Treasury powers in section 1 to make regulations relating to the basic structure of the NICs regime, the rates of different categories of contributions and who is liable to pay them.

67.     Paragraphs 2 and 3 transfer powers concerning earners and earnings. These are to be exercised in concurrence with the Secretary of State since there are implications for the contributory benefits system.

68.     Paragraphs 4 to 15 transfer to the Treasury powers in sections 6 to 14 CBA to make regulations concerning liability and calculation of different categories of contributions.

69.     Paragraph 16 requires the Inland Revenue rather than the Secretary of State to pay Class 4 NICs and related interest into the Northern Ireland National Insurance Fund.

70.     Paragraphs 17 and 18 remove DSS involvement in regulating incidental matters concerning Class 4 NICs, which is collected together with Schedule D tax.

71.     Paragraph 19 confirms that regulations concerning the NICs regime fall to the Treasury, whilst regulations concerning earnings factors, which are benefit related, are retained by the Secretary of State.

72.     Paragraph 20 transfers a power to make regulations, inserted by section 54 Social Security Act 1998, allowing wrongly paid NICs to count for benefit purposes.

73.     Paragraph 21 amends the power to make regulations about what sums are to be treated as earnings so that it shall be exercised by the Treasury in concurrence with the Secretary of State. This takes account of potential implications for benefits.

74.     Paragraphs 22 to 28 transfer regulation-making powers in regard to special classes of contributors, such as servicemen. Because of potential effects on benefit entitlements they are all to be exercised by the Treasury in concurrence with the Secretary of State.

75.     Paragraphs 29 and 30 amend sections 175 and 176 (which cover regulation-making procedures) to include provisions where the Treasury or Inland Revenue have powers to make regulations.

76.     Paragraphs 31 to 35 transfer to the Inland Revenue powers in Schedule 1, paragraphs 1 to 6, to make regulations about the detail of payment methods etc.

77.     Paragraph 36 retains the apportionment between tax and contributions of any penalties collected under powers in Schedule 1, paragraph 7.

78.     Paragraphs 37 and 38 transfer to the Treasury the powers to set rates of penalties under paragraphs 7A and 7B of Schedule 1.

79.     Paragraph 39 transfers most of the list of regulation making powers in Schedule 1, paragraph 8 to the Treasury. Paragraph 8(d) which concerns entitlement to benefits stays with the Secretary of State.

80.     Paragraphs 40 and 41 transfer regulation-making powers in paragraphs 9 and 11 of Schedule 1 to the Treasury.

Social Security Administration Act 1992 (SSAA)

81.     Paragraphs 42 and 43 provide that powers in sections 14 and 15 relating to SSP and SMP are to be exercised by the Secretary of State in concurrence with the Inland Revenue.

82.     Paragraphs 44 to 50 amend references in sections 141 to 147 SSAA which relate to periodic review of, and reports to Parliament on, the balance in the NIF. All such responsibilities are transferred from the Secretary of State to the Treasury.

83.     Paragraphs 51 and 52 transfer functions relating to the administration of the NIF from the Secretary of State to the Inland Revenue.

84.     Paragraph 53 provides that the NIF shall meet the administrative costs of statistical enquiries whether they are commissioned by the Inland Revenue or the Secretary of State.

85.     Paragraph 54's amendments of section 165 should be read together with the amendments in paragraph 29 of Schedule 1 to the Bill. Both the Inland Revenue and the Secretary of State have roles in making adjustments between the National Insurance Fund and the Consolidated Fund which reflect their respective responsibilities post-transfer.

86.     Paragraph 55 amends section 166 because the Treasury will take over responsibility for receiving the report of the Government Actuary on the state of the NIF.

87.     Paragraphs 56 and 57 amend sections 189 and 190 (about regulation-making procedures) to include regulations made by the Treasury or the Inland Revenue.

88.     Paragraph 58 amends Schedule 7 so that regulations making provision consequential on regulations under section 5 CBA (earnings limits) fall outside the remit of the Social Security Advisory Committee.

Social Security Act 1993

89.     Paragraph 59 amends section 2 to transfer to the Treasury functions relating to payments into the National Insurance Fund.

Jobseekers Act 1995

90.     Paragraphs 60 to 63 transfer functions relating to the employers' National Insurance "contributions holiday" from the Secretary of State to the Treasury and Inland Revenue as appropriate.

Clause 3: exercise by Inland Revenue of functions transferred to them

91.     This clause describes how the Inland Revenue will carry out its new functions.

92.     Contributions are brought into the definition of "inland revenue" as set out in section 39 of the Inland Revenue Regulation Act 1890. From this it follows that section 13 of that Act places a duty on the Inland Revenue to collect contributions. Placing contributions under the care and management of the Inland Revenue allows the duty to "collect every part of inland revenue" to be tempered by considerations of efficiency and cost to the public purse.

93.     Where the Inland Revenue is collecting contributions it will continue to give due weight to preserving an individual's contribution record. There is no intention to relax the joint guidance in Departmental instruction manuals for Inland Revenue and Contributions Agency staff. This sets out the limited circumstances in which discretion over calculation of contributions arrears can be exercised and requires staff to allocate contributions to an employee's record wherever practicable.

94.     Receipts from contributions do not form part of general government receipts. They are paid into the National Insurance Fund under section 162 of SSAA. Clause 3(4) excepts contributions from the requirement on the Inland Revenue to pay all receipts into the Consolidated Fund.

95.     Several sections of the Inland Revenue Regulation Act 1890 set out in clause 3(3) do not need to apply to contributions. In some cases, comparable legislation already exists in relation to contributions. In other cases, the section no longer applies to income tax and would not be suitable in relation to contributions.

96.     The clause adds the transferred functions to the matters covered by the confidentiality declarations signed by Inland Revenue staff and the tax appeal Commissioners. All those concerned with the administration of inland revenue sign a declaration that they will not disclose information received in the course of their duties, apart from certain specified purposes. One of those purposes is currently for the purpose of a prosecution relating to inland revenue. Clause 3(5) permits disclosure for purposes of prosecutions relating to the Inland Revenue's new areas of responsibility such as contributions.

97.     At present the Inland Revenue is specifically given a power of care and management by paragraph 6(2) Schedule 2 SSCBA to allow it to remit interest charged on overdue Class 4 contributions. As clause 3(1) gives Inland Revenue powers of care and management in relation to contributions as a whole this specific provision is no longer required. Clause 3(6) repeals it.

Clause 4 and Schedule 4: enforcement

98.     Clause 4 introduces Schedule 4.

Schedule 4

99.     Current powers of inspection available to DSS officers are set out in section 110 of SSAA. Section 110 is amended to remove from its ambit issues which are being transferred from the Secretary of State to the Inland Revenue.

100.     This Schedule sets out in the new section 110ZA the equivalent powers which will be available to Inland Revenue officers when visiting places of business to check on or enforce transferred matters. Initially these will be the former staff of the Contributions Agency who will become officers of the Inland Revenue when functions are transferred. To align with existing tax sanctions, failure to produce information or documents when required to do so by such an officer will cease to be a criminal offence but instead will attract a civil penalty.

101.     Annex A shows sections 110 to 111 of SSAA as it is proposed that they be amended by the Bill.

102.     It will still be possible for the Secretary of State to make arrangements with the Inland Revenue for officers to undertake inspections for benefit purposes when they visit premises which they can inspect for their own purposes.

103.     The Schedule also makes amendments to sections 111 to 121 SSAA to transfer operational responsibility for enforcement matters from the Secretary of State to the Inland Revenue.

Details

104.     Paragraph 1 ensures that, instead of criminal penalties, civil penalties for failure to supply information or documents and for fraudulently or negligently supplying incorrect information or documents, set out in section 98 TMA, apply where information or documents are requested under section 110ZA, as they apply for tax purposes.

105.     Where there is a failure to provide the information the penalty is initially up to £300. A failure thereafter exposes a person to a further penalty of up to £60 a day so long as the failure continues. This mirrors the existing tax penalty. Where incorrect information is fraudulently or negligently provided the penalty is up to £3,000. The tax appeal Commissioners, an independent tribunal, have the ultimate say in setting the level of penalties having regard to the precise circumstances.

106.     Paragraph 2 amends section 110 of the SSAA. The existing provision permits the Secretary of State for Social Security to enter into arrangements with other government departments whose officers are entitled to inspect premises for their own purposes. Under those arrangements, those officers can be allowed to use the powers in section 110 for the purposes of that section. In other words, they can deputise for the Secretary of State's own staff in the use of those powers.

107.     The replacement makes it clear that the Secretary of State can make arrangements of this nature with the Inland Revenue. This will ensure that the current role of Contributions Agency inspectors in carrying out visits to employers' premises to check on compliance with legislation which other DSS Agencies administer may continue after transfer of functions. Visits of this kind may be made, for example, to check the details of earnings given by a person claiming an income-related benefit.

108.     Paragraphs 2(3) and (4) ensure that the powers in section 110 cannot be used by DSS officials in relation to functions which will be transferred from the Secretary of State to the Inland Revenue by the Bill.

109.     Paragraph 3 is at the core of the changes. It introduces a new section 110ZA into the SSAA which sets out the powers of officers of the Inland Revenue in relation to the functions taken over. The section is modelled closely on the existing section 110. However, no provision is made in the new section for the exercise by the Inland Revenue of those powers in relation to the functions which stay with the DSS. That is left to arrangements under the revised section 110(5).

110.     Section 110ZA(1) provides that the Inland Revenue may authorise any of its officers to exercise the powers conferred by the section for the purpose of the enactments set out in subsection (7). They are the CBA (insofar as it relates NICs, SSP and SMP), the SSAA and Part III of the PSA 1993 (which regulates employers' private occupational pension schemes).

111.     This parallels the existing power of the Secretary of State for Social Security in relation to his own officials. Initially the officers authorised by the Inland Revenue will largely be the former members of the Contributions Agency who currently use the powers conferred by section 110 SSAA.

112.     Section 110ZA(2) sets out the powers of the officers so authorised. The subsection provides that the powers are to be exercised for the purpose of the legislation set out above. There are three powers mirroring those in the existing section 110.

113.     First, officers have a right to enter at any reasonable time premises liable to inspection under the new section. This does not bestow any power to enter by force. The premises are defined in section 110ZA(3) as those where staff are employed, employment agencies operate or pension schemes are administered. Private residences not used for any trade or business are excluded.

114.     Secondly, officers are entitled to make whatever examination and enquiry is necessary to ascertain whether the legislation referred to above is being complied with in those premises.

115.     Thirdly, officers may require answers to questions relating to the application of the legislation from any person on the premises who is believed to be liable to pay contributions or a contributions equivalent premium.

116.     Section 110ZA(4) requires that officers authorised by the Inland Revenue under subsection (1) must carry a certificate of their authorisation and must produce it when asked.

117.     Section 110ZA(5) requires the persons defined in subsection (6) to provide an authorised officer with information and to produce documents which he or she may reasonably require for the purpose of checking whether contributions, statutory sick pay, statutory maternity pay or a contributions equivalent premium have been correctly paid.

118.     Under the equivalent provision in section 110(7) a person need not supply information or documents if to do so would incriminate himself or herself, or a spouse. There is no similar provision in section 110ZA because under the new section there is no criminal sanction for failing to do so.

119.     The persons who can be required to supply information or documents are defined in section 110ZA(6) as employers, persons carrying on an employment agency, a trustee or manager of a personal or occupational pensions scheme, their employees or their agents.

120.     Section 110ZA(7) sets out the legislation to which the new section applies.

121.     Section 110ZA(8) provides that a 'contributions equivalent premium' includes its predecessor a 'state scheme premium' payable before 6 April 1997.

122.     Paragraph 4 ensures that the existing criminal sanction in section 111 for failing to co-operate in one way or another with officers exercising their powers under section 110 does not apply where the powers are exercised by Inland Revenue officers. That is the case whether the powers are exercised by Inland Revenue officers under section 110ZA or under section 110(5) by virtue of arrangements between the Secretary of State for Social Security and the Inland Revenue.

123.     Paragraph 4 also ensures that no distinction is drawn in the application of the civil penalties rules (attracted by virtue of the amendment of section 98 TMA 1970 made by paragraph 1) depending on whether officers are acting under section 110ZA or section 110(5).

124.     Paragraphs 5 and 7 to 11 change references to the Secretary of State to the Inland Revenue in relevant sections of SSAA.

125.     Paragraph 12 inserts into section 162 new subsections (4ZA) and (4ZB) which ensure that any penalties imposed under section 110ZA or section 111(4) SSAA will be paid into the NIF even though other penalties charged under section 98 TMA are treated as tax due.

 
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Prepared: 27 november 1998