Citation, commencement and effect

1.  (1)  These Regulations may be cited as the Social Security (Contributions) (Amendment No. 5) Regulations 2014.

(2) These Regulations come into force on the day after the day on which they are made, and have effect for the tax year 2014-15 and subsequent tax years.

Amendment of the Social Security (Contributions) Regulations 2001

2.  (1)  The Social Security (Contributions) Regulations 2001(5) are amended as follows.

(2) After regulation 94A (exception from Class 4 liability in respect of certain amounts chargeable to income tax under Schedule D)(6) insert-

"Liability of a partner in an AIFM firm for Class 4 contributions

94B.  (1)  This regulation applies if an AIFM firm makes an election under section 863H of ITTOIA 2005 (election for special provision for alternative investment fund managers to apply)(7).

(2) Where a partner ("P") in an AIFM firm allocates a profit ("the allocated profit") to that firm as provided for in section 863I(2) of ITTOIA 2005 (allocation of profit to the AIFM firm), no Class 4 contributions are payable in respect of that allocated profit by virtue of the allocation.

(3) Paragraph (4) applies if all or part of the allocated profit vests in P at a time when P is carrying on the AIFM trade (whether as a partner in the AIFM firm or otherwise).

(4) The amount treated as a profit under section 863J(2) and (5) of ITTOIA 2005 (vesting of remuneration represented by the allocated profit) is to be treated for the purposes of the Act(8) as if it were profits-

(a)to which section 15(1) of the Act (class 4 contributions recoverable under the Income Tax Acts)(9) applies; and

(b)made by P in the tax year in which that profit is chargeable to income tax under Chapter 2 of Part 2 of ITTOIA 2005.

(5) In this regulation-

"AIFM firm" and "AIFM trade" have the meanings given in section 863H(3) and (4) of ITTOIA 2005; and

"ITTOIA 2005" means the Income Tax (Trading and Other Income) Act 2005.".

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations amend the Social Security (Contributions) Regulations 2001 (S.I. 2001/1004) ("the principal Regulations") by modifying the way in which the liability of partners in AIFM firms for Class 4 contributions is determined. The amendments are made in connection with sections 863H to 863L of the Income Tax (Trading and Other Income) Act 2005 (c. 5) ("ITTOIA 2005") (inserted by paragraph 15 of Schedule 17 to the Finance Act 2014 (c. 26)), which make special provision for determining the income tax liability for profits of partners in AIFM firms where those profits are deferred in line with regulatory requirements in connection with the Alternative Investment Fund Managers Directive (2011/61/EU).

Regulation 1 provides for the citation, commencement and effect. These Regulations have effect for the tax year 2014-15 and subsequent tax years. The power to make the Regulations with retrospective effect is provided for in section 18A(3) of the Social Security Contributions and Benefits Act 1992 (c. 4) and section 18A(3) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).

Regulation 2 amends the principal Regulations by inserting new regulation 94B which applies where an AIFM firm has made an election under section 863H of ITTOIA 2005. Paragraph (2) of new regulation 94B provides that where a partner in an AIFM firm allocates profits to that firm (see section 863I(2) of ITTOIA 2005) no Class 4 contributions shall be payable at the time of allocation in respect of those profits. Where all or part of the allocated profit vests in the partner at a time when the partner is carrying on the AIFM trade, paragraph (4) of new regulation 94B provides that Class 4 contributions are payable by the partner on that profit in the same tax year as that in which the profit is chargeable to income tax.

A Tax Information and Impact Note covering this instrument was published on 5th December 2013 and is available on the HMRC website at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263833/131205_NICs_Bill_Partnerships_TIIN.DOC. It remains an accurate summary of the impacts that apply to this instrument.