The Bill's intention is to 'provide a credible deterrent against current and future avoidance activity'.
The Bill's overall aim is to stop the avoidance of NICs on rewards of employment - by introducing powers to enable the making of NICs regulations that can take effect from an earlier date, if necessary going back to 2 December 2004. The powers will enable HMRC to deter and tackle tax and NICs avoidance 'more effectively' by ensuring that payments of employment reward will be charged to tax and NICs from the same date.
It takes forward the announcement made on December 2 2004 that where the Government became aware of tax and NICs avoidance schemes, it would legislate to close them down, where necessary, from that date.
Introducing the bill, Paymaster General Dawn Primarolo said: "The overwhelming majority of employers and employees pay their fair share of tax and NICs. But for too long a small minority have sought to use sophisticated and complex tax avoidance schemes to pass more of a burden onto the rest of us. Today's legislation will ensure that this activity will be permanently shut down so that everyone pays their fair share towards our public services."
The Bill contains the power to make anti-avoidance NICs regulations effective from the same date as the anti-avoidance tax measures to ensure 'that employers and employees using contrived schemes cannot avoid paying their correct NICs liability.
The Bill also extends the tax avoidance disclosure rules to NICs avoidance arrangements, and ensures employers cannot pass on their NICs liability on past payments of share based earnings to their employees.
The Goverment's annoucement said: "This will have no effect on employers and employees who organise their affairs in a straightforward and ordinary way - the vast majority. In particular, genuine employee share schemes and share option plans will not be affected."
The Disclosure Rules in Finance Act 2004, which required promoters to report tax avoidance schemes, did not cover schemes or arrangements that avoided NICs only. This Bill contains a power to make NICs regulations that will ensure that any NICs only avoidance scheme or arrangement is disclosed.
Clauses 1 to 4 contain provisions that will enable HMRC to make regulations that may take effect back to 2 December 2004 if necessary. The new power may only be used where income tax provisions that relate to employment income are effective from a date before the Royal Assent of the Finance Bill. So that any prior payments made under a tax and NICs avoidance scheme or arrangement (back to 2 December 2004 if necessary) can be treated as earnings for NICs purposes as if liability arose at the time the payment was made.
Clauses 5 and 6 ensure that joint NICs Agreements and Elections can only be used for their intended purpose. It will specifically prevent the use of these arrangements by employers who seek to recover from their employees any NICs liability that may be imposed on past payments under the powers being introduced by this Bill.
Clause 7 provides a power for regulations to apply the tax disclosure rules to NICs proposals and arrangements as they apply to income tax schemes.
For further details see:
The NICs Bill 2005
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