The Social Security (Contributions) (Amendment No. 5) Regulations 2025
The Social Security (Contributions) (Amendment No. 5) Regulations 2025, effective April 28, 2025, amend the 2001 Social Security (Contributions) Regulations.
These amendments exclude payments made under the Horizon Shortfall Scheme Appeals from earnings calculations used to determine Class 1 National Insurance contributions.
The regulations were created under the authority of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992, with concurrence from the Department for Communities.
Arguments For
Intended Benefit: Simplifies the calculation of National Insurance contributions by excluding certain compensation payments, reducing administrative burden for both employers and the government.
Evidence Cited: The regulations explicitly refer to the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 as the legal basis for their creation.
Implementation Method: The amendment directly modifies Schedule 3 of the Social Security (Contributions) Regulations 2001 by adding a new paragraph to disregard specified payments.
Legal/Historical Basis: The regulations are made under the powers conferred by sections 3(2) and (3) of the Social Security Contributions and Benefits Act 1992 and the corresponding Northern Ireland Act, signifying adherence to existing legal frameworks.
Arguments Against
Potential Impact: Could potentially reduce government revenue from National Insurance contributions, although this is likely to be minor.
Implementation Challenges: Ensuring accurate identification and processing of the excluded payments may present some administrative challenges initially.
Alternative Approaches: Alternatives might involve more complex calculations or different thresholds to achieve a similar outcome, potentially at a greater administrative cost.
Unintended Effects: Difficult to foresee major unintended effects, but potential for minor administrative complexities to emerge during implementation.
The Treasury make the following Regulations in exercise of the powers conferred by section 3(2) and (3) of the Social Security Contributions and Benefits Act 19921, and section 3(2) and (3) of the Social Security Contributions and Benefits (Northern Ireland) Act 19922 and now exercisable by them.
The Secretary of State and the Department for Communities concur in the making of these Regulations.
This introductory section establishes the legal authority for the regulations.
The Treasury creates these regulations using powers granted by the Social Security Contributions and Benefits Act 1992 (for England and Wales) and the corresponding Northern Ireland Act.
The Secretary of State and the Department for Communities also agree to these regulations.
These Regulations may be cited as the Social Security (Contributions) (Amendment No. 5) Regulations 2025 and come into force on 28th April 2025.
This section provides the official title—Social Security (Contributions) (Amendment No. 5) Regulations 2025—and states its effective date: April 28, 2025.
In Part 10 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (payments to be disregarded in the calculation of earnings for the purposes of earnings-related contributions)3 after paragraph 31 insert—
“Horizon Shortfall Scheme Appeals compensation payments
(1) A payment made by the Department for Business and Trade to a person or a nominated individual under the Horizon Shortfall Scheme Appeals.
(2) A relevant onward payment of the payment defined in paragraph (1).
(3) In this paragraph—
“Horizon Shortfall Scheme” has the same meaning as in paragraph 27(2);
“Horizon Shortfall Scheme Appeals” means the independent appeals process created by the Department for Business and Trade to assess compensation claims made under the Horizon Shortfall Scheme;
“nominated individual” means any person who was a shareholder or a director of a company or a partner in a partnership which ceased to exist and that would have been eligible for compensation under the Horizon Shortfall Scheme Appeals;
“relevant onward payment” has the same meaning as in paragraph 28(5).”
This section details the specific amendment to the existing Social Security (Contributions) Regulations 2001.
It adds a new item to Schedule 3, stipulating that compensation payments from the Horizon Shortfall Scheme Appeals are to be excluded when calculating earnings for National Insurance contributions.
The section clearly defines key terms like 'nominated individual' and 'relevant onward payment' for clarity and accurate application.
Anna Turley
Vicky Foxcroft
Two of the Lords Commissioners of His Majesty’s Treasury
2nd April 2025
Signed by the authority of the Secretary of State for Work and Pensions
Stephen Timms
Minister of State
Signed by the authority of the Secretary of State for Work and Pensions
1st April 2025
The Department for Communities concurs.
Sealed with the Official Seal of the Department for Communities on 2nd April 2025.
David Tarr A senior officer of the Department for Communities
This section records the signatures and dates of the individuals and departments authorizing and approving the regulations, signifying their official adoption and enactment.
These Regulations amend the Social Security (Contributions) Regulations 2001 to provide that Horizon Shortfall Scheme Appeals payments will be disregarded in the calculation of earnings for the purpose of establishing liability to Class 1 National Insurance contributions.
Horizon Shortfall Scheme Appeals payments are made by the Department for Business and Trade (“DBT”) to persons or nominated individuals who have been compensated under the Horizon Shortfall Scheme and have appealed to have their compensation assessed by the independent appeals process set up by DBT.
Relevant onward payments are payments made by a company who is a recipient under the Horizon Shortfall Scheme Appeals compensation payment to an individual who is or was a director or employee of that company for the purpose of passing on all or part of that compensation payment to that individual.
A Tax Information and Impact Note covering this instrument will be published on the website at: https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.
The explanatory note summarizes the regulations' impact: excluding Horizon Shortfall Scheme Appeals payments from National Insurance contribution calculations.
It clarifies who receives these payments and what constitutes a 'relevant onward payment'.
It also points to where further information, such as a Tax Information and Impact Note, can be found.