Explanatory note

These Regulations amend the Social Security (Contributions) Regulations 2001 (“the principal Regulations”). They come into force on 6th April 2011.

Schedule 3 to the 2001 Regulations allows certain payments to be disregarded in the calculation of earnings for the purpose of establishing liability for earnings-related national insurance contributions and Part 5 in particular provides for certain non-cash vouchers to be disregarded as payments in kind.

Regulation 1 provides for citation, commencement and effect. Regulation 4 has effect from 6th April 2011 for employees who joined a scheme before 6th April 2011 and Regulation 5 has effect from 6th April 2011 for employees who join a scheme on or after 6th April 2011.

Regulation 3 introduces definitions of terms relating to qualifying childcare vouchers which are used in regulations 4 and 5.

Regulation 4 amends paragraph 7 which provides a limited disregard for qualifying childcare vouchers where certain conditions are met. Previously the definition of “qualifying childcare voucher” referred to the definition in the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) which contained Conditions A to C. This regulation inserts Conditions A to C into the principal Regulations, which need to be satisfied for the disregard to be obtained. Condition C requires that childcare vouchers are provided under a scheme which is open to an employer’s employees generally or generally to those at a particular location. Regulation 4 introduces a qualification to Condition C so that where the scheme under which the childcare vouchers are provided involves relevant salary sacrifice arrangements or relevant flexible remuneration arrangements Condition C can still be met and the disregard obtained, even if the scheme is not open to relevant low-paid employees. Definitions of “relevant salary sacrifice arrangements”, “relevant flexible remuneration arrangements” and “relevant low-paid employees” are introduced by Regulation 3. The changes reflect proposed amendments to the tax exemption for qualifying childcare vouchers.

Regulation 5 inserts a new paragraph 7A into Part 5 of Schedule 3 which amends the conditions for the limited disregard for employees obtaining childcare vouchers when they join a scheme on or after 6th April 2011. A similar qualification to Condition C as described above is introduced. Also a new condition, Condition D is introduced. Condition D provides that where employees join a scheme on or after 6th April 2011 the amount of the disregard will be determined on the basis of an estimate of an employee’s relevant earnings. For additional rate taxpayers the maximum weekly amount to be disregarded will be £22, for higher rate taxpayers the disregard will be no more than £28 a week and for basic rate taxpayers the amount will be no more than £55 a week. The amended conditions reflect the proposed treatment for income tax purposes.

Two Tax Information and Impact Notes relating to this instrument were published in December 2010 alongside draft Finance Bill 2011 provisions and are available on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm. They remain an accurate summary of the impacts that apply to this instrument.