Department of Social Security 1 
                                                 17 March 1998 
______________________________________________________________ 
             
COUNTERING  AVOIDANCE OF NATIONAL INSURANCE CONTRIBUTIONS

The Secretary of State for Social Security, Harriet Harman,
has welcomed the anti avoidance package announced today by the
Chancellor. 

The package contains measures which will clarify and
strengthen the rules requiring employers to operate PAYE  and
National Insurance when, instead of paying cash, they pay
their staff in assets which can be easily turned into cash.  
Ms Harman said:

"  I welcome the Chancellor's announcement.  We are determined
to tackle artificial schemes that have been created to avoid
paying National Insurance Contributions.  
It is only fair that earnings paid in assets which are
readily convertible into cash should be liable for National
Insurance Contributions in the same way as cash earnings.  I
will be introducing new provisions to mirror the tax changes.
This will reinforce the steps taken in the Social Security
Bill to tackle avoidance through vouchers and restrictive
covenants and confirms our commitment to reduce avoidance. "

Employer and Employees National Insurance is levied on
earnings paid in cash. Currently,  most earnings that are paid
in kind, such as goods and services, are excluded from
National Insurance liability.  

Some employers have used artificial schemes in an attempt to
avoid National Insurance.  Under the avoidance schemes the
employees are provided with assets which they can then quickly
and easily turn to cash. Such schemes are generally founded on
a narrow interpretation of existing anti-avoidance provisions
which is not accepted by the DSS.

Today's announcement will discourage new schemes by clarifying
and strengthening the legislation. 


NOTES FOR EDITORS

1.   Schemes which pay remuneration in non-cash forms are
often artificial and have  no commercial purpose other than to
avoid National Insurance and defer tax. Such schemes have
involved payment in bismuth, hay, trade debts and reversionary 
interests in offshore trusts.  

2.   Schemes which seek to avoid National Insurance
Contributions can create unfairness.  Employers who pay
their employees' in cash incur a National Insurance
liability.  It is right and equitable that those employers who
use artificial schemes to avoid National Insurance
Contributions but put a similar amount of cash in the hands of
their employees should also incur the same National Insurance
liability.

3.   The Chancellor has announced changes to  be included in
the Finance Bill which will amend the legislation concerning
the operation of PAYE on remuneration in the form of
"tradeable assets."  The Secretary of State will introduce
regulations to mirror the tax changes.  Under the new
provisions the term "tradeable asset" will be replaced by"
readily convertible asset" and the meaning of "trading
arrangements" is extended. An Inland Revenue Press Release 
gives full details of the tax changes. 

4.   The DSS regulations will give further protection to the
National Insurance Fund which funds contributory Social
Security benefits.   

5.   The DSS changes will not increase compliance costs for
the great majority of employers and employees who are not
involved in schemes to avoid National Insurance Contributions. 


6.   DSS measures follow other Government measures to stop
employers avoiding National Insurance.
  
7.   Clause 48 of the Social Security Bill amends Section 3 of
the Social Security Contributions and Benefits Act 1992.  This
introduces new powers to provide for regulations to apportion
payments made to or for the benefit of two or more earners. 
This strengthens the existing legislation capturing vouchers
and certain payments into Funded Unapproved Retirement Benefit
Schemes (FURBS). These measures will increase the revenue to
the National Insurance Fund by an estimated 60 million Pounds.

8.   Clause 50 of the Social Security Bill will stop avoidance
schemes involving  restrictive undertakings.   Prior to the
Clause being tabled, these schemes were widely marketed and
lost revenue was estimated at 30 million Pounds each year.  

    
____________________________________________________________ 

Media Enquiries to :
 
DSS Press Office: 0171 238 0754/0756     
Out of hours press enquiries: 0171 238 0761
Public enquiries: 0171 712 2171
Internet address: http://www.dss.gov.uk