National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill (First sitting)

Grahame Morris Excerpts

Tuesday 14th May 2019 Public Bill Committees

[Anneliese Dodds]

Q Thank you; the point is clear. I appreciate that clarification.

I have questions about testimonials, as does the SNP spokesperson, the hon. Member for Aberdeen North, but I am sure we will come back to them later. My final question for now is about the real-time approach to payment of NICs. What kind of communication exercise will be undertaken with those who may be affected? I appreciate Mr Nayyar’s comments about ongoing discussions with software providers and others, but concerns have been expressed that this remains something that could be viewed as an administrative burden. The view is that, currently, the system is not set up to accept those payments. Can we have an indication of the communications that will be provided to ensure businesses are aware of this and not concerning themselves unnecessarily?

Raj Nayyar: I will take this. HMRC has regular stakeholder events with tax professionals and software providers in which we will be communicating how this will happen. We will be issuing guidance in due course to explain what we would like employers to do and what they need to be aware of. We will be supplying specifications for third-party software providers about what changes they need to make to their software, so all of that will be ongoing.

Robert Jenrick: To add to that, the purpose of bringing the Bill forward at this moment is that, if we can secure passage through Parliament and gain Royal Assent, there will be good time for that communication and for employers and software providers and so on to make the necessary changes before the start of the next tax year.

[Grahame Morris (Easington) (Lab)]

Q It is a privilege to serve on the Committee under your chairmanship, Ms McDonagh. I seek some clarification from the Minister in respect of some of his earlier responses. When explaining why the Bill has been brought forward, you mentioned clarity, fairness, consistency and international comparators, but it is also an issue of closing a tax loophole, is it not? Can you clarify the particular point that was made on Second Reading that terminations were

“subject to different income tax and national insurance treatment”

and that had allowed a

“small number of well-advised employers to disguise final payments as compensatory termination awards that benefit from a national insurance charge exemption.”—[Official Report, 30 April 2019; Vol. 659, c. 153-4.]

Do some well-informed employers see this as a means of avoiding paying tax and a way of giving a bonus to an employee on a short-term contract, thus also avoiding PAYE income tax?

Robert Jenrick: Essentially, yes. We have numerous examples of this. Raj, will you give some of them?

Raj Nayyar: Common examples we have seen are when an employee may have been due payment in lieu of notice, but they reach an agreement with their employer whereby the contract is terminated and, instead, they get a compensation award for damages for breach of that contract. That is taxable over £30,000 but it would have been entirely NICs-free. The Bill disincentivises that kind of manipulation by the very well advised.

Robert Jenrick: Choosing only to apply employer’s national insurance disincentivises the employer from taking that action, without doing what one might have done by going further and creating a further cost to the employee.

[Grahame Morris]

Q Will the Minister—or perhaps his officials—indicate how many employers HMRC has investigated over the past few years who are using this loophole to avoid paying national insurance contributions, or is it simply an estimate?

Raj Nayyar: I am afraid we do not have the numbers to break that down.

[Grahame Morris]

Q Can you not make an estimate of how much the Treasury has lost? You said in your earlier answer that it would generate £200 million in revenue. I also saw an earlier note that said it would raise £485 million for the Treasury by 2020-21. Is it fair to say that £200 million is being lost per year?

Robert Jenrick: No, that is not correct.

Simon Smith: To explain the difference between those two figures, the £485 million figure includes the impact of the income tax changes that have already been passed that were part of a package of measures. There are two different sets of changes. The first set—the income tax changes—simplified the rules to make it harder to manipulate payments. The NICs bit, which we are now taking forward, aligns the NICs treatment to remove the incentive to do what we were trying to stop through income tax in the first place. The £200 million figure refers to the yield just from the NICs element of this—the bit that we are discussing today.

[Grahame Morris]

Q I am with you. Do we have an estimate of how much the Treasury has lost as a result of using this method to avoid paying NICs?

Simon Smith: We do not have a breakdown of that.

[Laura Smith (Crewe and Nantwich) (Lab)]

Q It is a pleasure to serve under your chairmanship, Ms McDonagh. A quick question for the Minister: how much consultation has there been with the trade unions over this?

Robert Jenrick: We consulted twice and the trade unions took part in the consultations.

Simon Smith: The Trades Union Congress definitely responded. I have a full list of responses, and would have to look at who else responded. The Trades Union Congress definitely sent a response.

Robert Jenrick: We will confirm which other trade unions responded to the consultation. From memory, the Trades Union Congress certainly did.