10.In practice, around 94 per cent of contributions are collected under statutory arrangements by the Inland Revenue alongside income tax. There are currently five classes of contributions:
	Class 1 contributions are paid by both employees and employers on the employee’s earnings. They are mostly collected with PAYE income tax.
	Class 1A contributions are paid by employers on the value of cars and fuel provided to their employees.
	Class 2 contributions are flat rate. They are paid by the self-employed.
	Class 3 contributions are paid voluntarily by the non-employed for retirement pension purposes.
	Class 4 contributions are profits-related, paid by the self-employed. They are collected with Schedule D income tax.
From April 1999 there will also be:
	Class 1B contributions which will be paid by employers only on small non-cash payments which are dealt with under a PAYE Settlement Arrangement.
11.Since SERPS was introduced in 1978, employers who operate occupational pension schemes are allowed to “contract out” – i.e. to provide a pension to their employees in place of SERPS - provided that certain conditions are met. In contracted-out occupational schemes both employer and employee pay lower (“rebated”) rate contributions in recognition that full SERPS will not be paid. Individuals can also contract out of SERPS via an appropriate personal pension. Members of appropriate personal pensions pay full rate contributions but an amount equal to the rebate is paid directly into the scheme by the CA. As well as paying rebates, the CA administers the system of contracting-out more generally.
12.Contributions in Northern Ireland are collected by the Contributions Unit of the Northern Ireland Social Security Agency, which is part of the Northern Ireland Department of Health and Social Services (DHSS(NI)). Contributions and related matters are “excepted matters” for the purposes of the Northern Ireland Act 1998. Section 24 of this Act provides for those excepted matters to be transferred by Order in Council to the post-transfer location of their equivalents for Great Britain. Operational functions of the CA would transfer to the Inland Revenue. Policy functions in respect of contributions would transfer to the Treasury or the Inland Revenue. Related excepted matters would transfer to the Secretary of State for Social Security.
13.Normally transfers of functions between Government Departments would be achieved by an Order in Council under the Ministers of the Crown Act 1975 (MoCA). However, the Inland Revenue does not fall within the definition of “Minister of the Crown” in that Act. As a result, primary legislation is required to transfer functions. This Act achieves this principally by amending the provisions which confer functions on the Secretary of State in relation to contributions, SSP, SMP and contracting-out matters, and by amending incidental provisions of tax and social security law to the extent necessary to enable the transferred functions to be exercised effectively by the Inland Revenue alongside its existing functions in relation to tax.
14.Throughout the Act, and in these explanatory notes, the Commissioners of Inland Revenue are referred to as “the Board” or “the Inland Revenue” as appropriate.
Background