DPRR/14-15/58
NATIONAL INSURANCE CONTRIBUTIONS BILL
Memorandum for the House of Lords Delegated Powers and Regulatory
Reform Committee
INTRODUCTION
1. This memorandum has been prepared by Her Majesty’s Revenue and
Customs (‘HMRC’) for the purposes of the House of Lords Delegated
Powers and Regulatory Reform Committee. It identifies the provisions in
the National Insurance Contributions Bill (‘the Bill’) which confer powers to
make delegated legislation. It explains the purpose of the delegated power
proposed; why the matter is to be dealt with in delegated legislation; and
the nature and justification for any parliamentary procedures which apply.
BACKGROUND
2. The Bill takes forward a number of Government announcements. The
provisions of the Bill where powers have been taken are those:

simplifying Class 2 National Insurance contributions (‘NICs’), including
making consequential amendments to Maternity Allowance;

allowing HMRC to issue a notice to users of NICs avoidance schemes
that have failed before the courts in another party’s litigation (a ‘follower
notice’);

accelerating the payment of disputed NICs in avoidance cases;

applying new information powers and penalties to high-risk promoters
of NICs avoidance schemes; and

introducing a Targeted Anti Avoidance Rule (‘TAAR’) to support new
legislation tackling avoidance involving employment intermediaries.
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Simplifying NICs paid by the self-employed
3. At Budget 2014, the Chancellor announced that the Government intends
to simplify the collection process of NICs for the self-employed, who
currently have to deal with two different processes for two separate
classes of NICs. At present Class 2 NICs is a flat rate liability of £2.75 per
week paid through six monthly billing or by Direct Debit, while Class 4
NICs is a percentage liability on profits exceeding £7,956 of 9% or 2% paid
through Self Assessment alongside income tax. Clauses 1 to 2 and
Schedule 1 move the collection of Class 2 NICs into Self Assessment, with
effect for the 2015/16 tax year and subsequent tax years.
Follower Notices and accelerated payments in avoidance cases
4. The Government confirmed at Autumn Statement 2013 that it would
introduce a new obligation for users of failed avoidance schemes requiring
them to settle their tax dispute where the avoidance scheme they have
used has been defeated at tribunal or court hearing in another party’s
litigation. The consultation paper ‘Tackling marketed tax avoidance’ was
published on 24 January 2014. It set out the proposals and draft legislation
for the first stage of the linked follower notice & accelerated payment
measures.
5. Clause 3(1) and Part 1 of Schedule 2 apply Part 4 of the Finance Act 2014
(follower notices and accelerated payments) to Class 1, 1A, 1B and certain
Class 21 contributions (‘relevant contributions’) with modifications. Clause
3(3) and Part 3 of Schedule 2 apply Part 4 of the Finance Act 2014 to
Class 4 contributions.
6. The new powers being introduced in the Finance Act 2014 allow HMRC to
issue a notice to taxpayers who have used avoidance schemes that have
failed before the courts in another party’s litigation (a ‘follower notice’). The
1
The Class 2 contributions that are covered by clause 3(1) and (2) and Schedule 2 are those
set out in paragraphs 22 and 31 of Schedule 2 (interpretation).
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follower notice would set out HMRC’s view that the judicial decision also
determines those taxpayers’ cases and that they therefore should settle
their cases. If the taxpayer does not settle in response to this notice they
will face a penalty if they are unable to show that they had good reason for
deciding not to settle their case.
7. Where a follower notice has been issued and the taxpayer decides not to
settle their dispute, an accelerated payment of the tax in dispute may be
required. Accelerated payment may also be sought from taxpayers
involved in schemes subject to disclosure under the Disclosure of Tax
Avoidance Schemes (‘DOTAS’) rules and arrangements that HMRC
decides to counteract under the General Anti-Abuse Rule (‘GAAR’).
8. Applying the tax legislation to NICs will effectively create a single follower
notice and accelerated payments regime for both tax and NICs which will
be administered in the same way.
High-risk promoters of avoidance schemes
9. At Budget 2013 the government announced its intention to introduce new
powers to take tougher action against high-risk promoters of tax avoidance
schemes, including new information and penalty powers.
10. Clauses 3(2) and Part 2 of Schedule 2 extend Part 5 of the Finance Act
2014 (promoters of tax avoidance schemes) to relevant contributions with
modifications. Clauses 3(3) and Part 3 of Schedule 2 extend Part 5 of the
Finance Act 2014 to Class 4 contributions.
11. The new powers being introduced in the Finance Act 2014 will allow
HMRC to issue conduct notices to promoters of tax avoidance schemes
and monitor promoters who breach a conduct notice. Monitored promoters
will be subject to new information powers and penalties which may also
apply to intermediaries that continue to represent them after the monitoring
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commences. The monitored promoter may be named by HMRC and
required to inform its clients that it is being monitored by HMRC.
12. As noted above in respect of the follower notice and accelerated payments
regime, applying the tax provisions to NICs in this way effectively ensures
that a single high-risk promoter regime applies in relation to both tax and
NICs avoidance.
Targeted Anti Avoidance Rule to prevent people from circumventing new
legislation tackling avoidance involving employment intermediaries and
offshore employers
13. At Budget 2013 the Chancellor announced that the Government would
strengthen legislation in respect of offshore employment intermediaries to
prevent them from being used to avoid employment taxes and NICs. At
Autumn Statement 2013 the Government announced that they would also
be taking action to tackle the use of onshore intermediaries facilitating
false self-employment.
14. Clause 5 introduces a Targeted Anti Avoidance Rule which focuses on
whether arrangements have been put in place in an attempt to avoid NICs
and circumvent the strengthened legislation. This legislation will follow tax
legislation included in the Finance Act 2014, and in addition apply to
situations where a worker is employed by an offshore employer and
engaged by a UK employer without the involvement of an agency.
TERRITORIAL EXTENT
15. The provisions in this Bill relating to Contributions will extend to England
and Wales, Scotland, and Northern Ireland. NICs are a reserved matter in
Wales and Scotland and an excepted matter in Northern Ireland.
16. There is separate primary legislation for Northern Ireland in the Social
Security
Contributions
and
Benefits (Northern
4
Ireland)
Act
1992
DPRR/14-15/58
(‘SSCB(NI)A 1992’) and the Social Security Administration (Northern
Ireland) Act 1992, which mirrors the Great Britain legislation. The Social
Security Contributions (Transfer of Functions, etc) (Northern Ireland) Order
1999 (S.I. 1999/671) transferred responsibility for National Insurance in
Northern Ireland from the Department of Health and Social Security
(Northern Ireland) to Treasury Ministers and the Board of Inland Revenue
(now HMRC). The Treasury and HMRC therefore have UK-wide
responsibility for National Insurance.
PROVISIONS FOR DELEGATED LEGISLATION
17. The provisions in the Bill which allow delegated legislation to be made are
set out below. Provisions in a schedule to the Bill are included immediately
after the clause which introduces the schedule.
Paragraphs 3 and 12, Schedule 1 – Power to set a higher rate of Class 2
contributions

Power conferred on: the Treasury
 Parliamentary procedure: affirmative
18. Paragraph 3 of Schedule 1 introduces a new section 11 to the Social
Security Contributions and Benefits Act 1992 (‘SSCBA 1992’). Paragraph
12 inserts the same provision into SSCB(NI)A 1992. These provisions are
referred to in this memorandum as ‘new section 11’. New section 11(8)
allows the Treasury to make provision for a higher rate of Class 2
contributions to be payable by those who are employed under a contract of
service but are treated as self-employed earners for NICs purposes by
regulations, which are currently the Social Security (Categorisation of
Earners)
Regulations
1978
(S.I.
1978/1689)
(‘the
Categorisation
Regulations‘). This preserves the power that already exists at section
11(3) of both SSCBA 1992 and SSCB(NI)A 1992, which would otherwise
be lost when section 11 is replaced by this Bill.
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19. This power was introduced to ensure parity of treatment between those
who are self-employed earners and those who are treated as selfemployed earners by virtue of the Categorisation Regulations. The former
also pay Class 4 contributions, but the latter do not. This power could,
therefore, be used to charge a higher rate of Class 2 contributions in these
cases. It is not intended to currently exercise this power, but it continues to
be required to ensure that the legislation is able to reflect future
developments in employment practices. As the power potentially increases
contribution rates for certain categories, the affirmative procedure
continues to afford appropriate Parliamentary scrutiny.
Paragraphs 3 and 12, Schedule 1 – Power to modify the meaning of
‘relevant profits’

Power conferred on: the Treasury
 Parliamentary procedure: affirmative
20. Under new section 11 an individual is only liable to pay Class 2
contributions if they have relevant profits of, or above, the small profits
threshold (set in new section 11(4) at £5,885). ‘Relevant profits’ is defined
in new section 11(3). New section 11(9)(a) provides the Treasury with the
power to modify the meaning of ‘relevant profits’, including amending new
section 11. This will allow for certain exceptions to be made when
calculating the profit figure for Class 2 purposes. It is currently intended
that this will follow the approach taken in relation to Class 4 contributions,
which is set out in Schedule 2 to SSCBA 1992. However, this power would
allow policy decisions to be made to exclude certain items (such as
payments made under a scheme to encourage people into selfemployment) from profits chargeable to Class 2 NICs, but not Class 4
NICs, in the future.
21. Modifying the meaning of ‘relevant profits’ would potentially result in some
individuals with profits close to the small profits threshold moving above or
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below the threshold. As a result, the appropriate level of Parliamentary
scrutiny is provided by the affirmative procedure.
22. When responsibility for NICs was transferred to the Treasury in 1999
certain safeguards were put in place to ensure that a person’s entitlement
to contributory benefit was protected. One such safeguard was the need to
secure the Secretary of State’s concurrence when the Treasury exercised
a transferred power that could remove a person’s entitlement to
contributory benefit. The power at section 11(9)(a) does not permit the
Treasury to remove a person’s right to contributory benefit by reducing
their profits as such an earner would remain able to pay voluntary Class 2
contributions to protect their benefits entitlement under new section 11(6).
As a result, the concurrence of the Secretary of State is not required.
Paragraphs 3 and 12, Schedule 1 – Power to provide that an earner may
not pay voluntary Class 2 contributions

Power conferred on: the Treasury, with the concurrence of the
Secretary of State/the Department for Social Development
(Northern Ireland)
 Parliamentary procedure: affirmative
23. New section 11(9)(b) provides the Treasury (with the concurrence of the
Secretary of State or the Department for Social Development in Northern
Ireland) with the power to exclude earners from being able to pay Class 2
contributions voluntarily either if the employment or the earner is of a
prescribed description or in prescribed circumstances.
24. Paragraph 34 of Schedule 1 maintains the exclusion of married women
with a reduced rate election from paying Class 2 NICs. This is in order to
preserve the current National Insurance treatment of this group.
25. It is possible that in the future a policy decision may be made that it is
inappropriate for other categories of self-employed earners to be allowed
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to pay voluntary contributions (taking account of developments in
employment practices) or that it is inappropriate to allow individuals to do
so in certain circumstances (for example while in prison) and therefore, a
general power to make exceptions is required. It is considered that further
primary legislation solely to deal with such a matter would not be justified.
As exercising this power would have the effect of taking certain people out
of entitlement to pay Class 2 and, therefore, potentially affect their access
to contributory benefits, this power will be subject to the affirmative
procedure and exercised with the concurrence of the Secretary of State or
the Department for Social Development in Northern Ireland, as
appropriate.
Paragraphs 9 and 18, Schedule 1 – Power to provide, in connection with
maternity allowance, for a person to pay Class 2 contributions early

Power conferred on: the Treasury, with the concurrence of the
Secretary of State/the Department for Social Development
(Northern Ireland)

Parliamentary procedure: negative
26. Paragraph 9(3) of Schedule 1 inserts a new provision, paragraph 7BB, into
Schedule 1 to SSCBA 1992 (collection of contributions otherwise than
through PAYE system). Paragraph 18 makes similar provision in
SSCB(NI)A 1992. These provisions allow the Treasury (with the
concurrence of the Secretary of State or relevant Northern Ireland
department) to make regulations that provide for a person, in connection
with Maternity Allowance, to pay a Class 2 contribution, in respect of a
week in a tax year, at any time beginning with that week and ending on a
prescribed date.
27. These regulations would ensure that self-employed women can pay their
Class 2 contributions before they have filed their Self Assessment return in
order to obtain standard rate Maternity Allowance. Regulations made
using this power may also provide that where a contribution is paid before
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the end of the tax year it is treated as a voluntary contribution under
section 11(6). After the end of the tax year (at which point liability for Class
2 contributions will have crystallised) that payment will be treated as a
contribution under section 11(2) if the person is liable to pay a contribution
or, if not, it will be treated as a voluntary Class 2 contribution under section
11(6). This avoids payment being made twice in respect of the same
week. Payments made after the end of the tax year will either be
contributions under section 11(2) or voluntary contributions under section
11(6).
28. This power relates to the method by which a self-employed woman may
secure entitlement to Maternity Allowance by early payment of Class 2
contributions. This may change as experience of operating the scheme
develops. The power will be used to set out the administration of the
process and, therefore, the appropriate level of Parliamentary scrutiny is
provided by the negative procedure.
Paragraph 37, Schedule 1 – Power to make transitional or transitory
provision or saving provision in connection with the coming into force
of Schedule 1

Power conferred on: the Treasury

Parliamentary procedure: none
29. Paragraph 37 of Schedule 1 allows the Treasury to make regulations
which contain transitional, transitory or saving provision in connection with
the coming into force of any of the amendments made by Schedule 1.
30. This is a standard provision. It is necessary in order to ensure that the
detailed provisions of the Bill can be brought into force smoothly and to
deal with any transitional matters that are not covered directly by the Bill.
As it is part of the commencement provision for Schedule 1, there is no
parliamentary procedure.
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Clause 2 – Reform of Class 2 contributions: consequential etc power

Power conferred on: the Treasury
 Parliamentary procedure: negative
31. This clause provides the power to make consequential, incidental or
supplementary provision in connection with the provision made in
Schedule 1 (Reform of Class 2 contributions). Regulations made under
this clause may modify primary and secondary legislation, including by
amending, repealing or revoking it.
32. Subsection (4) applies section 175(3) to (5) of SSCBA 1992 to this power.
This allows, among other things, the regulations to make different
provision for different cases or classes.
33. This power would allow the Treasury to make consequential amendments
to legislation in a single statutory instrument. It is expected that this power
will be used to update references in legislation to refer to the correct
provisions of new section 11. As well as the changes it has made, the new
section has different internal numbering from its predecessor. There are
also minor changes which are likely to follow from the changes made to
the structure of Class 2 NICs, such as the change in liability from a weekly
to an annual basis.
34. There may be a number of these minor changes which need to be made to
legislation consequent on provisions of this Bill, and so it is necessary to
make these provisions in regulations. Although the power allows
amendments to be made to both primary and secondary legislation, these
changes will be technical in nature and only consequential on provisions
made by the Bill. As a result, the appropriate level of Parliamentary
scrutiny is provided by the negative procedure. This was the position taken
in relation to consequential amendments that followed from the new
definition of charity for tax purposes in the Finance Act 2010 (see
paragraph 29 of Schedule 6 to the Finance Act 2010).
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Clause 3 and Schedule 2: Application of Parts 4 and 5 of Finance Act
2014 to national insurance contributions
35. Clause 3 introduces Schedule 2 which applies Part 4 of the Finance Act
2014 (follower notices and accelerated payments) and Part 5 of that Act
(promoters of tax avoidance schemes) to NICs.
36. Paragraph 37 below deals with powers in Part 5 of the Finance Act 2014
which will extend to NICs by virtue of that Part’s application by clause 3
and Schedule 2. The powers that are taken in Parts 1 and 2 of Schedule 2
itself are set out in paragraphs 38 to 46 below.
Clauses 3(2) and (3) and Parts 2 and 3 of Schedule 2 – Application of
Part 5 of the Finance Act 2014 to national insurance contributions
 Powers conferred on: HMRC or the Treasury
 Parliamentary procedure: affirmative or negative
37. The tax provisions relating to promoters of avoidance schemes set out in
Part 5 of the Finance Act 2014 include regulation-making powers. By
applying Part 5, this Bill directly reflects these powers for NICs, as
otherwise there would be an unhelpful distinction drawn between the
regimes applicable to tax and National Insurance. In order to assist the
Committee, a description of each power that will be applied by virtue of the
application of Part 5 is set out in the attached Annex.
Paragraph 11 of Part 1, and paragraph 26 of Part 2, of Schedule 2 –
Power to make contrary provision in relation to the disclosure of tax
avoidance schemes rules
 Powers conferred on: Treasury
 Parliamentary procedure: affirmative or negative
38. Paragraphs 11(1) and 26(1) of Schedule 2 extend references in Part 4 and
Part 5 of the Finance Act 2014, respectively, to a provision of Part 7 of the
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Finance Act 2004 (disclosure of tax avoidance schemes) (a ‘DOTAS
provision’) as including a reference to:
(a)
that DOTAS provision as applied by regulations under section 132A
of the Social Security Administration Act 1992 (disclosure of
contributions avoidance arrangements); and
(b)
any provision of regulations under that section that corresponds to
that DOTAS provision,
whenever the regulations are made.
39. Paragraphs 11(2) and 26(2) enable regulations under section 132A of the
Social Security Administration Act 1992 to disapply, or modify the effect of,
paragraph 11(1) and 26(1), respectively, so as to exclude the regulations
from the scope of the modifications treatment, or modify that treatment, if
necessary. This is necessary to ensure that accelerated payments and
high-risk promoters regimes are not automatically applied in a way which
is inappropriate.
40. The procedure for regulations under section 132A of the Social Security
Administration Act 1992 containing provision made by virtue of paragraphs
11(2) and 26(2) would be the same as for any other regulations under that
section; namely the negative procedure, unless the regulations also
amend the definitions of “notifiable contribution arrangements” or
“notifiable contribution proposals” in section 132A(3), in which case the
draft affirmative procedure applies (see sections 132A(4), 190(1) and
190(3) of the Social Security Administration Act 1992). This provides the
appropriate level of scrutiny for this type of power, the effect of which will
be to remove regulations which apply, or correspond to, DOTAS
provisions to NICs, from the scope of the modification or change the effect
that the modification has on them.
Paragraph 15(2) of Part 1 of Schedule 2 – Power to disapply, or modify
the effect of, modifications made to tax legislation applied to NICs
 Powers conferred on: Treasury
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 Parliamentary procedure: negative
41. Paragraph 15(1) extends references in section 212 of the Finance Act
2014 to a ‘relevant penalty provision’ to include:
(a)
provisions mentioned in section 212(4) of the Finance Act 2014
which are applied to NIC by regulations (whenever made). The
provisions listed in section 212(4) are :
i. Schedule 24 to the Finance Act (penalties for errors),
ii. Schedule 41 to the Finance Act 2008 (penalties: failure to
notify etc), or
iii. Schedule 55 to the Finance Act 2009 (penalties for failure
to make returns etc);
(b)
section 98A of the Taxes Management Act 1970 as applied in
relation to NICs by regulations (whenever made); and
(c)
any other provision specified in regulations which a penalty can be
imposed in respect of relevant contributions.
42. Paragraph 15(2) confers a power on the Treasury to disapply, or modify
the effect of, paragraphs 15(1)(a) or (b). Paragraph 15(4) also applies the
powers in section 175(3) to (5) of SSCBA 1992 (various supplementary
powers) to regulations made under paragraph 15.
43. Regulations under paragraph 15(2) will be used to ensure that relevant
penalty provisions are appropriate in the circumstances. These regulations
will be subject to the negative procedure, which will provide the
appropriate level of scrutiny for regulations which will disapply, or modify
the effect of, tax legislation applied to NICs where new or existing
penalties are not intended to be brought within the scope of the measure.
Paragraph 15(3) of Part 1 of Schedule 2 – Power to modify the effect of
tax legislation applied to NICs
 Powers conferred on: Treasury
 Parliamentary procedure: negative
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44. Paragraph 15(3) enables regulations to be made to modify the effect of
section 212 so that the aggregate penalty cap will apply appropriately to
NICs. The power would be applied where penalty provisions in NICs
regulations referred to in paragraphs 15(1)(b) or (c) do not approach the
quantification of penalties in exactly the same way as the corresponding
tax penalties.
45. Paragraph 15(4) applies the powers in section 175(3) to (5) of SSCBA
1992 (various supplementary powers) to regulation made under paragraph
15(3).
46. These Regulations will ensure that the modification applied in respect of
aggregating penalties where a follower notice penalty has also been
issued in respect of the same disputed amount of contributions will work
properly for NICs. It is not appropriate for the modifications to be made on
the face of the Bill as the penalty provisions themselves are set out in
regulations, and those regulations may be subject to change. This is a
matter relating to the detailed operation of the scheme, and so the
negative procedure will provide the appropriate level of scrutiny.
Clause 4 – Provision in consequence etc of tax-only changes to Part 4 or
5 of the Finance Act 2014

Power conferred on: the Treasury
 Parliamentary procedure: affirmative or negative
47. Clause 4 provides that, where there has been a change to Part 4 (follower
notices and accelerated payments) or Part 5 (promoters of tax avoidance
schemes) of the Finance Act 2014 that does not apply in relation to NICs
(‘the tax-only modification’), the Treasury may make regulations to:
(a)
apply
the
tax-only
modification
modifications;
14
to
NICs
with
or
without
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(b)
make provision for NICs that corresponds to the tax-only
modification; and
(c)
otherwise modify those Parts in relation to their effect on NICs in
consequence of or for the purpose of making provision that is
supplementary or incidental to the tax-only modification.
48. Subsection (2) provides that the regulations can amend, repeal or revoke
other
legislation;
make
consequential,
incidental,
supplementary,
transitional, transitory or saving provision; and make different provision for
different cases, purposes or classes of NICs.
49. It is possible that the tax legislation may be amended once it has been in
operation. Any amendments to the tax legislation will be made in primary
legislation using the annual Finance Bill. Where a modification is made to
the tax provisions that does not apply to NICs it would otherwise mean that
any changes to the NICs provisions would require a programme Bill.
50. The power enables the Treasury to make regulations by applying the taxonly modifications to NICs or by making corresponding provision or to
make such other provision in consequence of, or in order to supplement or
make provision incidental to, tax-only modifications as is appropriate.
Whilst the power appears to be broad its scope is limited in that it must
follow what is done for tax and can only be used where a modification has
been made to Parts 4 or 5 of the Finance Act 2014.
51. Without the power it would not be possible to make changes to the NICs
provisions which would result in the tax and NICs elements of these
provisions being out of line, potentially for a significant period, until it was
possible to deal with the matter in primary legislation. This could result in
uncertainty for those affected.
52. Regulations under clause 4 which amend or repeal a provision of primary
legislation will be subject to the affirmative procedure (clause 4(4)). This
provides the appropriate level of scrutiny for this type of power. Any other
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statutory instrument made under this provision which does not amend
primary legislation will be subject to the negative procedure, which will
provide the appropriate level of scrutiny for measures which reflect
changes made elsewhere. This follows the approach taken in section 11 of
the National Insurance Contributions Act 2014 to tax-only modifications of
the General Anti-Abuse Rule.
Clause 5(3) and (5) – Modification of power to make regulations to
prescribe the treatment of certain categories of earners as ‘employed’ or
‘self-employed’ for NICs purposes
 Power conferred on: the Treasury with concurrence of the
Secretary of State/the Department for Social Development in
Northern Ireland
 Parliamentary procedure: negative
53. Clause 5 inserts regulation 5A into the Categorisation Regulations, which
provides an anti-avoidance rule dealing with intermediary arrangements
that have been put in place to avoid payment of NICs. The Categorisation
Regulations are made under, among other provisions, section 2(2) of both
SSCBA 1992 and SSCB(NI)A 1992.
54. Section 2(1) of both Acts (categories of earners) sets out the definition of
employed and self-employed earners for NICs purposes. Section 2(2)(b) of
the Acts provide a power for the Treasury (with the concurrence of the
Secretary of State or the Department for Social Development in Northern
Ireland) to make regulations providing that a person in employment of a
description prescribed in those regulations is to be treated for NICs
purposes as either an employed earner or a self-employed earner
notwithstanding that the person would not fall into that category apart from
those regulations.
55. Clause 5(3) and (5) inserts subsection (2ZA) into section 2 of both Acts.
This provides that regulations made under subsection (2)(b) can make
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provision for treating a person as being either an employed or selfemployed earner where arrangements have been entered into where the
main, or one of the main, purposes of those arrangements is to avoid the
person being treated as being within a certain category as a result of
regulations under made under section (2)(b) or that a person is not treated
as the secondary contributor in respect of earnings paid to the person in
respect of an employment. ‘Arrangements’ are defined in new subsection
(2ZB) to include any scheme, transaction or series of transactions,
agreement or understanding, whether or not legally enforceable, and any
associated operations.
56. This provision extends the scope of the existing regulation-making power
to ensure that the result of those regulations cannot be avoided by
entering into arrangements for that purpose. Given that the existing
regulations are made by the Treasury (with the concurrence of the
Secretary of State or the Department for Social Development in Northern
Ireland) and subject to the negative Parliamentary procedure, it would
seem appropriate for this to continue to apply.
Clause 5(4) and (6) – Modification of power to make regulations to
prescribe a person to be treated as a secondary contributor
 Power conferred on: the Treasury
 Parliamentary procedure: negative
57. Secondary contributors, in most cases the employer, are liable for
secondary Class 1 contributions under section 6 of both SSCBA 1992 and
SSCB(NI)A 1992. Section 7 of both Acts defines ‘secondary contributor’
and section 7(2) gives the Treasury the power to prescribe that a person is
to be treated as a secondary contributor in respect of earnings paid to or
for the benefit of an earner.
58. Clause 5(4) and (6) inserts subsections (2A) and (2B) into section 7 to
provide that regulations made under subsection (2) may make provision
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treating a person as the secondary contributor in respect of such earnings
where arrangements have been entered into the main purpose, or one of
the main purposes, of which is to secure that the person is not so treated
by other provisions in the regulations. ‘Arrangements’ are defined in the
same way as the provision in new subsection (2ZB) above.
59. As with the power in clause 5(3) and (5), this provision extends the scope
of the existing regulation-making power to ensure that the result of those
regulations cannot be avoided by entering into arrangements for that
purpose. Given that the existing regulations are made by the Treasury
(with the concurrence of the Secretary of State or the Department for
Social Development in Northern Ireland) and subject to the negative
Parliamentary procedure, it would seem appropriate for this to also apply
to the modification.
HM Revenue and Customs
18 November 2014
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Annex
Powers within Part 5 of, and Schedules 34 to 36 to, the Finance Act 2014
(‘FA 2014’)
Section 235 of FA 2014 – Promoters of tax avoidance schemes

Power conferred on: HMRC

Parliamentary procedure: negative
1. The provisions in Part 5 of FA 2014 apply to people who carry on business
as promoters. Section 235 defines promoter for these purposes.
Subsection (6) contains a power to allow the definition of promoter to be
amended to exclude persons from being a promoter in prescribed
circumstances.
Subsection
(7)
allows
these
regulations
to
have
retrospective effect. Regulations to exclude from the definition of promoter
those providing advice on the commercial aspects of a proposal or
arrangement are planned for later in 2014 with retrospective effect to
Royal Assent of the Finance Act. On commencement of this Bill any
regulations made under this power with retrospective effect to Royal
Assent of the Finance Act will have prospective effect in respect of NICs
(where applicable). It may be that, as the operational experience of HMRC
develops, there are other groups which it is appropriate to exclude.
2. This power is capable of making retrospective provision. However, it can
only be used to exclude people from the requirements of Part 5, which
would be to their advantage. As a result, the negative procedure will
provide the appropriate level of scrutiny.
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Section 237 of, and paragraphs 8 and 9 of Schedule 34 to, FA 2014:
Disciplinary action by a professional body or regulatory authority

Power conferred on: HMRC

Parliamentary procedure: negative
3. Section 237 describes the circumstances under which HMRC can issue a
conduct notice. Sub-section (2) introduces Schedule 34 which sets out the
‘threshold conditions’ and describes how they are met.
4. Paragraph 8 of that Schedule provides that one of the threshold conditions
that would trigger a conduct notice is disciplinary action by a professional
body. Sub-paragraph (1) defines this as occurring if a professional body
determines that the person is guilty of a prescribed kind of misconduct,
takes prescribed action in relation to that misconduct and imposes a
prescribed penalty in respect of it. Misconduct can only be prescribed if it
is other than misconduct that relates solely or mainly to the person’s
relationship with the professional body, such as the payment of fees. Subparagraph (3) sets out a list of professional bodies, which can also include
other prescribed bodies with functions relating to the regulation of a trade
or profession.
5. Paragraph 9 of Schedule 34 provides that another of the threshold
conditions that would trigger a conduct notice is disciplinary action by a
regulatory authority that results in a relevant sanction being imposed. Subparagraph (2) allows HMRC to prescribe the sanctions to which this
paragraph applies. Sub-paragraph (3) lists the Financial Conduct Authority
and Financial Services Authority as regulatory authorities for the purpose
of this paragraph, and allows other authorities that have functions relating
to the regulation of financial institutions to be added to the list by
regulations.
6. These powers are necessary in order for the arrangements to reflect the
variety of regulatory authorities and the different approaches that they
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take. This is likely to change over time, as the regulation of different areas
develops, and so it is necessary to deal with the matter in regulations. As
they relate to technical detail, the negative procedure provides the
appropriate level of scrutiny.
Paragraph 14 of Schedule 34 to FA 2014: Power to Amend

Power conferred on: Treasury

Parliamentary procedure: affirmative
7. Paragraph 14(1) allows the Treasury to amend Schedule 34. Subparagraph (2)(a) allows the Treasury to amend the Schedule to vary or
remove any of the threshold conditions at paragraphs 2 to 12. Subparagraph (2)(b) enables new conditions to be added. Sub-paragraph (3)
provides for regulations to include any consequential amendment of this
Part of FA 2014 by virtue of sub-paragraph (1).
8. This power is necessary to ensure that the scheme created by Part 5 of
FA 2014 and its supporting schedules remains able to deal with promoters
of avoidance schemes, and continues to provide the necessary protection
for the National Insurance Fund. As this power allows for the amendment
of primary legislation, the affirmative procedure is appropriate.
Section 238 of FA 2014 – Contents of a conduct notice
 Power conferred on: Treasury
 Parliamentary procedure: affirmative
9. Section 238 defines the contents of a conduct notice. A conduct notice is a
notice given to a promoter which requires them to comply with specified
conditions. One purpose for which a condition can be imposed is to ensure
that the promoter complies with their duty under a specified disclosure
provision. Subsection (7) provides a power for the Treasury to amend the
definition of disclosure provision, which is provided in subsection (5).
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10. This power is necessary to allow the legislation to keep pace with
amendments made to the disclosure obligations of promoters. These
obligations are set in legislation which can be expected to change from
time to time. As this power could be used to impose new obligations on
promoters, the affirmative procedure provides the appropriate level of
scrutiny.
Section 249 of FA 2014 – Publication by monitored promoter
 Power conferred on: HMRC
 Parliamentary procedure: negative
11. Section 249 requires a promoter to notify its clients that it is a monitored
promoter and which conditions of a conduct notice it has been found to
have failed to comply with. HMRC may make regulations under subsection
(3) requiring a monitored promoter to publish this information and its
promoter reference number on the internet. Subsection (10) provides that
a monitored promoter must also include the information and reference
number in any prescribed publication or correspondence. Subsection (11)
allows the form and manner of these notifications and publications to be
prescribed in regulations.
12. These powers are necessary as they relate to operational matters of
detail, which it would not be appropriate to set out in primary legislation.
The matters they deal with are likely to change as technology develops,
and they may also be affected by HMRC’s developing experience of
effective notification methods. As this is a matter of operational detail, the
negative procedure provides the appropriate level of scrutiny.
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Section 253 FA 2014 – Duty of persons to notify the Commissioners
 Power conferred on: HMRC
 Parliamentary procedure: negative
13. Section 253 requires a person who is notified of a promoter reference
number to report the number to HMRC. Subsection (2) provides that the
report must be made in (or, in prescribed circumstances) submitted with
each tax return made by the person during the period of the tax
arrangements. If there is no such tax return, they must make a report
which contains the prescribed information in a prescribed form and
manner and within a prescribed time limit. Subsection (4) makes similar
provision in relation to inheritance tax, stamp duty land tax, stamp duty
reserve tax or petroleum revenue tax. Paragraph 27 of Part 2 of Schedule
2 to the Bill provides that references to a tax return in section 253 of FA
2014 includes a return relating to NICs that is required to be made by or
under an enactment.
14. This power is necessary in order to ensure that HMRC is provided with the
information it requires in order to operate the promoter scheme and protect
the National Insurance Fund. These provisions will involve a level of
technical detail which it is not appropriate to set out in primary legislation,
and which may change over time. As this is a technical matter, the
negative procedure provides the appropriate level of scrutiny.
Section 257 of FA 2014 – Ongoing duty to provide information following
HMRC notice
 Power conferred on: HMRC
 Parliamentary procedure: negative
15. Section 257 allows an authorised officer to give a notice to a monitored
promoter requiring them to provide information about all monitored
proposals and arrangements. The information and documents to be
provided will be set out in regulations.
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16. This power will only apply in relation to promoters who are already subject
to monitoring arrangements. The provisions will deal with detailed matters
that may develop in line with HMRC’s operational experience. As a result,
the negative procedure provides the appropriate level of scrutiny.
Section 259 of FA 2014 – Monitored promoters: duty to provide
information about clients
Section 260 of FA 2014 – Intermediaries: duty to provide information
about clients

Power conferred on: HMRC

Parliamentary procedure: negative
17. Sections 259 and 260 are concerned with the provision of information
about the clients of a monitored promoter or intermediary. An authorised
officer may serve a notice requiring the promoter or intermediary to
provide information which, under subsections (9) and (7) respectively,
includes their clients’ names and addresses, as well as such other
information about the person as may be prescribed.
18. These powers will only apply in relation to promoters who are already
subject to monitoring arrangements. The provisions will deal with detailed
matters that may develop in line with HMRC’s operational experience. As
a result, the negative procedure provides the appropriate level of scrutiny.
Section 261 of FA 2014 – Enquiry following provision of client
information

Power conferred on: HMRC

Parliamentary procedure: negative
19. Section 261 allows an authorised officer to issue a notice to a promoter or
intermediary if they suspect that a client return under section 259 or 260
has not included a person who is party to the transactions implementing a
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proposal or arrangement. This notice will require the promoter or
intermediary to provide prescribed information about the person.
20. This power is necessary to enable HMRC to specify the information that is
required in line with their developing operational experience of these
provisions. As this is a matter that relates to the detailed operation of the
scheme, the negative procedure provides the appropriate level of scrutiny.
Section 268 of FA 2014 – Production of documents: compliance

Power conferred on: HMRC

Parliamentary procedure: negative
21. This section allows a person who has received a notice under sections
255, 257 or 262 to produce a document to comply with this requirement by
producing a copy of the document, subject to any conditions or exceptions
that may be prescribed.
22. This power enables HMRC to require documents to be provided in original
form where this is necessary in order properly to monitor the scheme.
Setting out the documents where this is appropriate will be a detailed
matter which it would be inappropriate to deal with in primary legislation,
particularly as it is likely to develop with operational experience. The
negative procedure provides the appropriate level of scrutiny.
Section 274 of, and paragraph 5 of Schedule 35 to, FA 2014: Power to
change amount of penalties

Power conferred on: Treasury

Parliamentary procedure: affirmative
23. Section 274 introduces Schedule 35 which contains provisions about the
penalties for Part 5 of FA 2014. Paragraph 5 of Schedule 35 allows the
Treasury to make regulations which change the value of the penalties that
Schedule 35 imposes on non-compliant promoters. This power can only
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be exercised if it appears to the Treasury that the value of money has
changed since either the date of the Bill’s passing or the last date on which
the power was exercised.
24. This power is necessary to ensure that the penalties in Schedule 35 keep
pace with the value of money, as otherwise their usefulness would
deteriorate with time. The use of the power is limited to dealing with this
issue. However, as it amounts to an amendment to primary legislation
which
affects
individuals, the affirmative
procedure provides the
appropriate level of scrutiny.
Paragraph 13 of Schedule 35 to FA 2014: Overlapping penalties

Power conferred on: HMRC

Parliamentary procedure: negative
25. Paragraph 13 of Schedule 35 provides that a person cannot be liable to a
penalty under section 253 of FA 2014 for failing to include a reference
number and either Schedule 24 to the Finance Act 2007 or Part 7 of the
Finance Act 2004. There is a power to allow other provisions to be added
to this list.
26. This power allows HMRC to ensure that a person is not unfairly made
liable to two penalties for the same conduct. As the relevant provisions
may change over time, it is appropriate to be able to deal with the matter in
regulations. The effect of this provision can only assist an individual, and
so the negative procedure provides the appropriate level of scrutiny.
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Section 281 of, and paragraph 21 of Schedule 36, to FA 2014: Power to
amend definitions

Power conferred on: Treasury

Parliamentary procedure: affirmative
27. Section 281 introduces Schedule 36 which contains provisions about the
application of Part 5 to partnerships. Paragraph 21 of Schedule 36 allows
the Treasury to amend the definitions of ‘controlling member’ and
‘managing partner’ given at paragraphs 19 and 20 of that Schedule.
28. This power is necessary to reflect any changes that occur within
partnership structures in order to ensure that the Bill still achieves its
purpose. As this allows amendments to be made to primary legislation, the
affirmative procedure provides the appropriate level of scrutiny.
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