Schedule 1: Reform of Class 2 contributions Follower Notices and Accelerated Payments: Class 1, 1A, 1B and certain Class 2
85.Subsection (1) provides that Part 1 of Schedule 2 applies Part 4 of FA 2014 (follower notices and accelerated payments) to Class 1, 1A, 1B and certain Class 2 contributions.
86.Paragraph 1 of Part 1 of Schedule 2 provides that Part 4 of FA 2014 (follower notices and accelerated payments) is to have effect with the modifications contained in the rest of that Part of the Schedule. Paragraph 22 provides a definition of ‘relevant contributions’ which applies to Part 1 of this Schedule. It includes Class 1, 1A, 1B and Class 2 contributions (to which section 11A of SSCBA 1992 and section 11A of SSCB(NI)A 1992 do not apply).
87.Paragraph 2 provides that references to tax or a relevant tax, other than references to particular taxes, include relevant contributions. Where the tax legislation deals with a specific tax (for example, Stamp Duty Land Tax or Annual Tax on Enveloped Dwellings) this does not have any effect on relevant contributions.
88.Paragraph 3 provides that references to a charge to tax include a liability to pay relevant contributions and references to a person being chargeable to tax, or to tax being charged, are to be read with this modification in mind.
89.The effect of the modifications described in paragraphs 2 and 3 above enables key concepts defined in Chapter 1 of Part 4 of FA 2014 to apply in respect of the relevant contributions. For example, the term ‘tax’ includes relevant contributions, ‘tax advantage’ includes a relevant contributions advantage and the meaning of this term includes the avoidance of a liability to pay relevant contributions (section 201(1) of FA 2014). Also, the term ‘tax arrangement’ includes a relevant contributions arrangement, that is arrangements where, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a relevant contributions advantage was the main purpose, or one of the main purposes, of those arrangements (section 201(3) of FA 2014).
90.Paragraph 4 provides that references to an assessment to tax include a NICs decision relating to a person’s liability for relevant contributions. For the purposes of this Part of the Schedule a ‘NICs decision’ means a decision under section 8 of SSC(TF)A 1999 or Article 7 of SSC(TF)(NI)O 1999.
91.Paragraph 5 provides that references to a tax enquiry include a relevant contributions dispute. This has been introduced to ensure that the tax and NICs rules work together satisfactorily. In particular, a regulation 80 determination under the Income Tax (Pay As You Earn) Regulations 2003 (S.I. 2003/2682) will often be issued earlier than the related ‘NICs decision’. Introducing this concept permits accelerated payments of avoided PAYE and relevant contributions to be dealt with together, rather than issuing separate notices at different times.
92.Paragraph 6 defines the term “relevant contributions dispute”. Such a dispute will arise if, without having made a ‘NICs decision’ HMRC notifies a person in writing that they consider them to be liable to pay an amount of relevant contributions and the person informs HMRC in writing (“a notification of dispute”) that they dispute liability for some or all the contributions (“the disputed contributions”).
93.Paragraph 7 provides that a relevant contributions dispute is in progress, in relation to a notification of dispute, during the period which starts on the day when the person gives notification of a dispute and ends on the day which either (i) the disputed contributions are paid in full, (ii) HMRC and the person enter into a written agreement regarding the person’s liability for the disputed contributions and any amount of those contributions that a person is to pay under that agreement has been paid, (iii) an officer of HMRC makes a NICs decision in relation to the disputed contributions, or (iv) without making a NICs decision, HMRC notifies the person in writing that HMRC no longer considers the person to be liable to pay the disputed contribution.
94.Paragraph 8 provides that references to a return into which a tax enquiry is in progress include a notification of a dispute in relation to which a relevant contribution dispute is in progress.
95.Paragraph 9 provides that references to a tax appeal include a NICs appeal.
96.Paragraph 10 defines “NICs appeal” as an appeal under section 11 of SSC(TF)A 1999 or Article 10 of SSC(TF)(NI)O 1999 against a NICs decision relating to relevant contributions (‘the initial appeal’), an appeal against any determination of the initial appeal (‘a further appeal’) or an appeal against any determination of a further appeal.
97.Paragraph 11(1) provides that where a reference is made to Part 7 of the Finance Act 2004 (disclosure of tax avoidance schemes) (a “DOTAS provision”) that reference includes the regulations made under section 132A of SSAA 1992 (disclosure of contributions avoidance arrangements), which either apply the DOTAS provision to, or make corresponding provision for the purposes of, NICs. Paragraph 11(2) enables contrary provision to be made by regulations.
98.Paragraph 12 modifies the definition of “relevant tax” in section 200 of FA 2014 (“relevant tax”) to include relevant contributions within its list.
99.Paragraph 13 modifies the effect of section 204 of FA 2014 (circumstances in which a follower notice may be given). Section 204(3) sets out that there must be a return, claim or appeal made on the basis that a particular tax advantage arises from ‘chosen arrangements’. For the purposes of the relevant contributions that condition is also met if, in a relevant contributions dispute, a person disputes liability for relevant contributions on the basis that a NICs advantage results from the use of a NICs arrangement, regardless of whether the notification of the dispute was given on that basis.
100.Paragraph 14 applies in a case where a follower notice has been issued whilst a NICs dispute is in progress. Paragraph 14(2) specifies what necessary corrective action is to be taken by a person receiving a follower notice for the purposes of section 208 of FA 2014 (penalty if corrective action not taken in response to follower notice). These steps are:
101.Paragraph 14(3) disapplies subsections (4) to (7) and (9) to (11) of section 208 of FA 2014, which are specific to tax, and extends the reference in section 209(3)(a) (amount of a section 208 penalty) to amending a return or claim as including the making of the payment referred to in paragraph 14(2)(a).
102.Paragraph 15(1) modifies the application of section 212 of FA 2014 (aggregate penalties). It extends references to “relevant penalty provision” to include:
103.Paragraph 15(2) allows for regulations to be made to disapply, or modify the effect of, sub-paragraphs (1)(a) or (1)(b). This is to cover circumstances where the application of provisions in regulations is no longer appropriate. Paragraph 15(3) allows for regulations to be made to modify section 212 of FA 2014 so that the aggregate penalty cap applies appropriately to the relevant contributions. Paragraph 15(4) applies the power to make various supplementary provision under section 175(3)-(5) of SSCBA 1992 to regulations made under this paragraph.
104.Paragraph 16 provides that for the purposes of section 219 of FA 2014 (circumstances in which an accelerated payment notice may be given), Condition B is met if in a relevant contributions dispute a person disputes liability for relevant contributions on a basis mentioned in section 219(3), regardless of whether the notification of dispute was given on that basis.
105.Paragraph 17 sets out the nature and recovery of an accelerated payment. Sub-paragraph (1) provides that the paragraph applies so far as it represents understated tax that consists of an additional amount that would be due and payable in respect of relevant contributions (“the understated contributions”).
106.Sub-paragraph (2) provides that the accelerated payment is a payment of understated contributions, not a payment on account of them. This reflects the need for sums to be treated as contributions for the various purposes in the Social Security Acts, such as being held in the NIF and accounted for as National Insurance, and so that their payment can count towards the qualifying conditions for contributory benefits. Accordingly sub-paragraph (3) provides that subsections (3), (7) to (9) of section 223 do not apply in relation to the accelerated payment.
107.Sub-paragraph (4) specifies that the accelerated payment must be paid before the end of the payment period regardless of whether an individual (“P”) brings a NICs appeal.
108.Sub-paragraph (5) provides that section 117A of SSAA 1992 and section 111A of SSA(NI)A 1992 (issues arising in proceedings: contributions etc) do not apply to proceedings for the recovery of any amount of the accelerated payment that remains unpaid at the end of the payment period.
109.Sub-paragraph (6) provides that a certificate of an officer of Revenue and Customs under section 25A of the Commissioners for Revenue and Customs Act 2005 (CRCA 2005) (certificates of debt) that the accelerated payment has not been paid is to be treated as conclusive evidence that the amount is unpaid.
110.Sub-paragraph (7) deals with the repayment of an accelerated payment of contributions and the effect on a person’s entitlement to benefit. It provides that, for the purposes of determining a person’s entitlement to benefit, or the amount of a person’s benefit, if some or all of the understated contributions are repaid, they are treated as if they had not been paid. Any payments of benefit made to a person before repayment would not be affected.
111.Sub-paragraph (8) defines “benefit” as meaning a contributory benefit or a statutory payment.
112.Sub-paragraph (9) provides that the terms used in paragraph 17 that are defined for the purposes of section 223 of FA 2014 has the same meaning as that section.
113.Paragraph 18 describes the effect of an accelerated payment notice where there is an existing appeal against a NICs determination. Sub-paragraph (1) provides that paragraph 18 applies where P has been given an accelerated payment notice which has not been withdrawn, and the appeal, by virtue of that notice, is a NICs appeal in respect of relevant contributions.
114.Sub-paragraph (2) specifies when P must pay the disputed contributions. The timings are in line with those for tax.
115.Sub-paragraph (3) provides that subsections (4) and (5) of section 117A of SSAA 1992 or section 111A of SSA(NI)A 1992 do not apply to proceedings before a court for recovery of the disputed contributions. The effect is that civil proceedings cannot be adjourned to await the outcome of an appeal against a NICs decision.
116.Sub-paragraph (4) provides that if proceedings have been adjourned under subsection (5) of the enactments specified in sub-paragraph (3), they cease to be adjourned so far as they relate to the disputed contributions.
117.Sub-paragraph (5) provides that a certificate of an officer of Revenue and Customs under section 25A of CRCA 2005 (certificates of debt) that the accelerated payment has not been paid, is to be treated as conclusive evidence that the amount is unpaid.
118.Sub-paragraph (6) deals with the repayment of an accelerated payment of contributions and the effect on a person’s entitlement to benefit. It provides that, for the purposes of determining a person’s entitlement to benefit, or the amount of a person’s benefit, if some or all of the understated contributions are repaid they are treated as if they had not been paid. Any payments of benefit made to a person before repayment would not be affected.
119.Sub-paragraph (7) defines “benefit” as meaning a contributory benefit or statutory payment.
120.Sub-paragraph (8) provides that for the purposes of paragraph 18, “the disputed contributions” means the relevant contributions to which the NICs appeal relates.
121.Paragraph 19(1) applies the relevant paragraphs of Schedule 56 to FA 2009 (provisions which apply to penalties for failure to make payments of tax on time) as specified in section 226(7) of FA 2014 (penalty for a failure to pay accelerated payment) to NICs but that the reference in that subsection to tax is not extended to include relevant contributions.
122.Paragraph 19(2) confirms that in applying the relevant paragraphs of Schedule 56 to FA 2009 to relevant contributions those provisions have effect:
123.Paragraph 20(1) provides that a penalty under section 208 (penalty if corrective action not taken in response to a follower notice) or section 226 of FA 2014 (penalty for a failure to pay accelerated payment) may be recovered as if they were an amount of relevant contributions which is due and payable.
124.Paragraph 20(2) provides that section 117A of SSAA 1992 or (as the case may be) section 111A of SSA(NI)A 1992 (decision of officer of HMRC not conclusive if subject to appeal and proceedings for recovery to be adjourned pending appeal) has effect in relation to proceedings before a court for recovery of the penalty as if the assessment of the penalty were a NICs decision as to whether the person is liable for the penalty. Accordingly, paragraph 20(3) disapplies section 211(4)(b) of FA 2014 (assessment of penalty to be enforced as if it were an assessment to tax) in relation to a penalty under section 208 imposed by virtue of Part 1 of Schedule 2.
125.Paragraph 21 provides that section 227(9) (withdrawal, modification or suspension of accelerated payment notice), has effect as if the provisions mentioned in that subsection included paragraph 18(2) of Schedule 2.
126.Paragraph 22 defines for the purposes of this part of Schedule 2 “accelerated payment notice”, “contributory benefit”, “the disputed contributions”, “HMRC”, “NICs appeal”, “NICs decision”, “notification of dispute”, “relevant contributions”, “relevant contributions dispute” and “statutory payment”.