Clause 5

Part of National Insurance Contributions Bill – in a Public Bill Committee at 5:45 pm on 7th December 2010.

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Photo of David Gauke David Gauke The Exchequer Secretary 5:45 pm, 7th December 2010

The right hon. Gentleman is right to highlight that issue. When we are developing policy in such areas it is all too easy to forget the realities of administration, how the scheme will work in practice and how HMRC will be able to cope with that. There is a temptation in a Committee such as this to address great issues of policy, which may be relevant but which do not get to grips with the administration side. We must administer this scheme properly, which is one of the reasons why we are keen to keep the provisions as simple as possible. We have debated various matters today, but we intend to keep the scheme simple and  avoid complications. There is always a temptation to meet further policy objectives and include additional complexities, but we are keen to resist that.

We must look at how businesses or potential applicants might seek to abuse the system. There may be innocent applications or misunderstandings about how the system works, and we are keen to keep such problems to a minimum. We want genuine new businesses to take advantage of the holiday if they are eligible, and we do not want them to be deterred by a complicated process. Where possible, HMRC will take account of the fact that new employers have many other duties and obligations. It will seek to operate the scheme through a compliance regime that is not unnecessarily intrusive and does not discourage genuine applicants.

More generally, our strategy is to use a “check now, pay later” approach to stop error and fraud throughout the tax system. We are keen to ensure compliance and to stop error and fraud in the most cost-effective way. Assistance will be given in the early pre-return stages to help with simple errors. Where people are tempted to break the rules, HMRC’s strategy will be to address those who are not taking enough care through targeted risk assessments and the use of profiling, to ensure that serious abuse and manipulation are identified and acted on. An individual employer can benefit only for the first 10 employees and by up to £5,000 per employee. That cap is to prevent large sums being made available and providing an incentive for fraud.

It is possible, indeed likely, that there will be some fraudulent applications. If someone incorrectly applies for the national insurance holiday and makes an incorrect return, at the end of the year they will be liable for that, based on the understatement of their national insurance contributions. A regime exists for national insurance contributions, and this scheme would fall within that. The penalties for an incorrect return will be no different to those that apply within the general workings of the national insurance contribution regime. That is how it will work, and I hope that the right hon. Gentleman takes some comfort from that. There is no separate penalties regime in the Bill because the scheme fits with an existing regime. However, he was right to highlight that point. We seek to keep the scheme as simple as possible and discourage fraudulent claims from being made on the basis that large sums of money will be available.

The right hon. Gentleman also asked about the appeals regime for the scheme. [Interruption.] To be fair, it is not as clear as it might be for those who are not familiar with the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and the equivalent Act in Northern Ireland. I understand that clause 8(6) and (7) deals with the appeals process although, as I say, the right hon. Gentleman could be forgiven for not appreciating that. That, however, provides a mechanism that I hope is helpful to him.