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HMRC internal manual

National Insurance Manual

Class NICs: Securities: Retrospective liability - Rights under contracts of insurance

Regulation 22(9) of the Social Security (Contributions) Regulations 2001

Schedule 2 of the Finance Act (No.2) 2005 amended section 420 of the Income Tax (Earnings and Pensions) Act 2003, with effect from 2 December 2004, to bring rights under contracts of insurance, other than excluded contracts of insurance, within the meaning of securities - see NIM06822.

A contract of insurance is an excluded contract of insurance if it is:

  • a contract for an annuity which is (or will be) pension income; or
  • a contract of long-term insurance, other than an annuity contract, which does not have a surrender value and is not capable of acquiring one (whether on conversion or in any other circumstances); or
  • a contract which falls, in accordance with generally accepted accounting practice, to be accounted for as a financial asset or liability.

Regulation 22(9) SSCR 2001 was introduced on 6 April 2007, but with effect from 2 December 2004. to treat as earnings any amount which by reason of the operation of Schedule 2 to the Finance Act (No.2) 2005 -

  • counts as employment income under Chapters 2 to 4 of Part 7 ITEPA 2003; and;
  • where the relevant date for the income determined under section 698(6) ITEPA (whether or not the PAYE regulations apply to that income) is on or after 2 December 2004 and before 20 July 2005.

From 20 July 2005, regulation 22(7) SSCR 2001 treats such amounts as earnings.

Other provisions within Schedule 2 inserted purpose tests, effective from 2 December 2004, in Chapters 2, 3, 3C and 4 of Part 7 ITEPA 2003 whereby those chapters do not apply if something which affects the employment-related securities has been done (at or before the time when the sections apply) as part of a scheme or arrangement the main purpose (or one of the main purposes) of which is the avoidance of tax or NICs.