Explanatory note

These Regulations amend the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004) (“the principal Regulations”).

Part 2 of these Regulations amends the principal Regulations as a consequence of the simplified deduction scheme for personal employers (“the Scheme”) being closed to new employers by virtue of the amendments made to regulation 34 of the Income Tax (Pay As You Earn) Regulation 2003 (S.I. 2003/2682) by regulation 64(a) of the Income Tax (Pay As You Earn) (Amendment) Regulations 2012 (S.I. 2012/822).

Chapter 1 of Part 3 of these Regulations amends Schedules 4 and 4A to the principal Regulations to make further provision in relation to the provision of Real Time Information (“RTI”) to the Commissioners for Her Majesty’s Revenue and Customs (“HMRC”) on or before the making of a payment to an employee.

Regulation 6 amends the definition of an RTI employer in paragraph 1(4) of Schedule 4 to exclude certain employers from becoming RTI employers on 6th April 2013.

Regulations 7 to 9 amend specified paragraphs of Schedule 4 to make amendments consequential upon the insertion of new paragraph 21EA by regulation 16 of these Regulations.

Regulation 10 amends paragraph 21A of Schedule 4 to make provision in respect of the information required where the employee is one whose earnings are below the lower earnings level. The regulation also makes a consequential amendment to paragraph 21A following the insertion of new paragraph 21EA into Schedule 4.

Regulation 11 inserts new paragraphs 21AA to 21AD into Schedule 4. New paragraph 21AA and 21AB make provision for exceptions from the requirement in paragraph 21A to report information on or before the making of a payment. Where new paragraph 21AA or 21AB applies the employer is required to report the payment by the end of a period of 7 days beginning with the day after the day on which the payment is made. New paragraph 21AC makes provision for including such information in a return in respect of any other relevant payment. New paragraph 21AD makes provision for employers who make a payment of general earnings which falls within regulation 85, 86 or 87 of the PAYE Regulations to deliver the information required as soon as practicable and no later than 14 days after the end of the tax month in which the payment is made.

Regulation 12 amends paragraph 21B of Schedule 4 to require an employer who makes a notional payment to report the payment no later than 14 days after the end of the tax month in which the payment is made.

Regulation 13 inserts new paragraph 21CA into Schedule 4 which details the information that an employer must provide when making a payment of general earnings by an approved method of electronic communications. New paragraph 21CA also requires a service provider who receives notification from the employer that the payment is one of general earnings to report the information that it holds to HMRC.

Regulation 14 amends paragraph 21D of Schedule 4 to extend those who are not required to make a return in accordance with paragraph 21A to include those employers whom HMRC are satisfied are unable to file using an approved method of electronic communications. It also amends paragraph 21D to make provision for the specified employers to file as non-Real Time Information employers for the tax year 2013-14.

Regulation 15 makes consequential amendments to paragraph 21E of Schedule 4 to expand the information that an employer must provide when making a return to include details of information omitted from an earlier return.

Regulation 16 inserts new paragraph 21EA into Schedule 4 to make provision for the situation where an employer has failed to make a return of information. New paragraph 21EA requires the employer to provide the information in the next return made under paragraph 21B or 21D for the tax year in question. If the information has not been included in such a return before 20th April following the tax year to which the information relates, the employer is required to report the information under paragraph 21EA(3) before 20th May. New paragraph 21EA(6) makes provision for section 98A of the Taxes Management Act 1970 (c. 9) to apply if the return is not made before 20th May following the end of the tax year to which the information relates. As a consequence of new paragraph 21EA(6) an employer who has not reported all the payments (either under paragraph 21B or 21D or under paragraph 21E(2) before 20th April or under paragraph 21EA(3) on or after 20th April but before 20th May) could be liable to a penalty for late filing.

Regulation 17 amends paragraph 21F of Schedule 4 to make provision for an employer to notify HMRC that for a particular tax period the employer was not required to make any returns under RTI or that the employer has made the final return for the tax year and to notify the date of cessation of the scheme.

Regulation 18 amends paragraph 22(A1) of Schedule 4 to correct an error in regulation 12 of S.I. 2012/821.

Regulation 19 amends paragraph 29N of Schedule 4 to include a reference to paragraph 11ZA of that Schedule to enable HMRC to seek security in respect of any amount due as a consequence of the rectification of an error or omission.

Regulations 20 to 22 insert new paragraphs 30A and 31A into Schedule 4 and amend paragraph 31 of that Schedule to make provision for employees within paragraph 30 to continue to submit paper returns for the tax year 2013-14. These employees will submit RTI returns from 6th April 2014.

Regulations 24 to 28 insert new paragraphs into Schedule 4A. This Schedule sets out the information which must be provided to HMRC by an employer when making a payment to an employee.

Chapter 2 of Part 3 sets out the transitional provisions which apply when an employer becomes an RTI employer on or after 6th April 2013. Regulation 29 requires any employer who has more than 250 employees (“a large employer”) on the day on which it becomes an RTI employer to provide certain information to HMRC at that time. This is a one off data alignment exercise.

Regulation 30 requires the employer to provide HMRC with the information specified in that regulation within one month of making the first return under either paragraph 21A or 21D of the principal Regulations.

Regulation 31 requires a large employer to provide the information specified in regulation 29 before any return is made under paragraph 21A or 21D of Schedule 4 to the principal Regulations. An employer who is not a large employer may provide the information specified by regulation 29 but is not required to do so.

Part 4 of these Regulations makes a number of amendments to the principal Regulations.

The principal Regulations provide for certain payments to be disregarded in the calculation of earnings for National Insurance purposes. Regulations 33, 39 and 40(a)(i) remove from the principal Regulations the disregard from Class 1 National Insurance contributions (“NICs”) on the first 15 pence per working day of a meal voucher provided by an employer to an employee.

The provisions of the principal Regulations removed by regulations 33, 39 and 40(a)(i) were inserted by, or amended by, a later statutory instrument. Part 6 of these Regulations makes a corresponding amendment to that later instrument in order to make sure that redundant legislation is removed from the statute book.

The Principal Regulations make provision, amongst other things, for the payment of voluntary NICs (voluntary Class 2 and Class 3). The principal Regulations make provision for those contributions to be made, subject to certain conditions, within a period of 6 years from the contribution year to which they relate.

Regulations 34, 35 and 37 make amendments to the principal Regulations in order to extend the period of time in which to make voluntary contributions for contributors who, as a consequence of the unavailability of pension statements between 2013-14 and 2016-17 (inclusive), will not be in a position to make an informed decision regarding payment of voluntary contributions for the tax years 2006-07 to 2016-17 and who will reach pension age on or after 6th April 2017.

Regulation 35 inserts new regulation 50C into the principal Regulations to give effect to the extended time period for Class 3 contributions by allowing, subject to conditions, contributions to be paid between 6th April 2013 and 5th April 2023. New regulation 50C also dis-applies the higher rate provisions in section 13(6) of the Social Security Contributions and Benefits Act 1992 (c. 4) (“SSCBA”) until 5th April 2019.

Regulation 37 inserts new regulation 61B into the principal Regulations to give effect to the extended time period for voluntary Class 2 contributions by allowing, subject to conditions, contributions to be paid between 6th April 2013 and 5th April 2023. New regulation 61B also dis-applies the higher rate provisions in section 12(3) SSCBA until 5th April 2019.

Regulation 36 amends the principal Regulations to reflect a change to the reduced rates of primary Class 1 NICs in respect of members of certain contracted-out pension schemes in relation to contributions paid with effect from the tax year 2012-2013 and subsequent tax years. Regulation 52A of the principal Regulations provides for the return of NICs paid in excess of the annual maximum prescribed in regulation 21 of the principal Regulations.

Regulation 36 reflects a change to the reduced rates of primary Class 1 NICs in respect of members of certain contracted-out pension schemes from 10.4% to 10.6%. The main rate of primary Class 1 NICs is 12%. Section 41 of the Pension Schemes Act 1993 (c.48) (the “1993 Act”) provides for a reduction in the rates of primary Class 1 NICs in respect of members of salary related contracted-out pension schemes. Article 2 of the Social Security (Reduced Rates of Class 1 Contributions, Rebates and Minimum Contributions) Order 2011 (S.I. 2011/1036) alters, with effect from the tax year 2012-2013, the percentage to be deducted from main rate of primary Class 1 NICs in respect of members of contracted-out pension schemes for the purposes of section 41 of the 1993 Act from 1.6% to 1.4%. Therefore, from 6th April 2013, the rate of primary Class 1 NICs in respect of members of salary related contracted-out pension schemes will increase from 10.4% to 10.6%.

Regulation 38 amends the principal Regulations to provide for the computation of the amount of a person’s Class 2 NICs where it is paid in the tax year to which an Income Tax “Pay As You Earn” code (“PAYE Code”) relates if the PAYE Code was determined in order to effect recovery of the contribution that should have been paid in an earlier tax year.

Schedule 3 of the principal Regulations allows certain payments to be disregarded in the calculation of earnings for the purpose of establishing liability for earnings-related NICs.

Part 5 of Schedule 3 to the principal Regulations provides for certain non-cash vouchers to be disregarded as payments in kind in the calculation of earnings for the purpose of establishing liability for earnings-related NICs. Paragraph 7A of the principal Regulations provides a limited disregard for qualifying childcare vouchers where employees join a scheme on or after 6th April 2011. The amount of the disregard is determined on the basis of an estimate of an employee’s relevant earnings for the tax year. For additional rate taxpayers the maximum weekly amount to be disregarded is £22. Regulation 40(a)(ii) amends the maximum weekly amount to be disregarded with effect from 6th April 2013 to £25.

Regulation 40(b) inserts a new paragraph 10A into Part 6 of Schedule 3 to the principal Regulations in order to provide that payments made under the Armed Forces Early Departure Scheme (S.I. 2005/437) are disregarded when calculating a person’s earnings for those purposes.

Part 5 applies the information and penalty provisions in Schedule 38 to the Finance Act 2012 (c. 14) (tax agents: dishonest conduct). This Schedule provides for tax agents who engage in dishonest conduct to be subject to penalties and for officers of Revenue and Customs to obtain relevant documents from such agents. Regulation 41 applies these provisions to NICs, as they apply to tax and duties, following the commencement of Schedule 38 on 1st April 2013.

A Tax Information and Impact Note covering regulations 3 and 4 was published on 15th March 2012 alongside the Income Tax (Pay As You Earn) (Amendment) Regulations 2012 (S.I. 2012/822) and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. It remains an accurate summary of the impacts that apply to this instrument.

A Tax Information and Impact Note covering regulations 5 to 32 was published on 15th March 2012 alongside the Social Security Income (Contributions) (Amendment No 3) Regulations 2012 (S.I. 2012/821). This has been updated as a result of changes to the impacts as a result of the year long RTI pilot and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm.

A Tax Information and Impact Note covering regulations 33, 39, 40(a)(i) and 42 was published on 6th December 2011 alongside the autumn statement and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. It remains an accurate summary of the impacts that apply to these regulations.

A Tax Information and Impact Note covering regulations 34, 35 and 37 was published on 27th February 2013 alongside a draft of these regulations and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. It remains an accurate summary of the impacts that apply to these regulations.

In line with government commitments a Tax Information and Impact Note covering regulation 36 has not been prepared as it gives effect to previously announced policy and it relates to routine changes to rates, limits and thresholds to a predetermined indexation formula.

An Impact Assessment covering regulation 38 was published by HMRC on 14th April 2009 which considered the impact of the proposal to extend coding out to any small debt. The Impact Assessment remains an accurate summary of the impacts that apply to this regulation and is available on the HMRC website at http://webarchive.nationalarchives.gov.uk/20100330144254/http://www.hmrc.gov.uk/budget2009/powers-debt-2400.pdf

A Tax Information and Impact Note covering regulation 40(a)(ii) was published on 11th December 2012 and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. It remains an accurate summary of the impacts that apply to this regulation.

Tax Information and Impact Note covering regulation 40(b) will be published on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm.

A Tax Information and Impact Note covering Part 5 was published on 6th December 2011 for Schedule 38 to the Finance Act 2012 and is available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. It remains an accurate summary of the impacts that apply to this regulation.