Abolition of contracted-out rebate and reporting requirements

11 January 2016

The abolition of contracted-out rebates from 6 April 2016 means that employers will need to report less earnings information to HMRC. A Tax Information and Impact Note (TIIN) has been published detailing the changes.

The Pensions Act 2014 implements the new State Pension and also abolishes the contracted-out rebate from 6 April 2016. A consequence of this change is that employers will need to report less earnings information to HM Revenue and Customs (HMRC) when making Real Time Information (RTI) returns.

The changes will come into force from 6 April 2016 and apply to the contributions paid in the 2016 to 2017 and future tax years

With the abolition of the contracted-out rebate and the introduction of a flat rate pension there is no longer any need for the Upper Accrual Point to cap the State Second Pension calculation. Employers will no longer need to report the earnings up to the Upper Accrual Point separately. However, employers will still need to record earnings up to the Upper Earnings Limit as earnings above this level do not count for contributory benefits and employees pay the additional rate of NICs at 2% above this point.

Currently paragraph 7(13) of Schedule 4 and 4A of the Social Security (Contributions) Regulations 2001 (SSCR) provide that employers must report the following earnings information:

  • earning up to the Lower Earnings Limit
  • earnings between the Lower Earnings Limit and Primary Threshold
  • earnings between the Primary Threshold and Upper Accrual Point
  • earnings between the Upper Accrual Point and Upper Earnings Limit.

The SSCR will be changed from 6 April 2016 to provide that employers must report the following earnings information:

  • earning up to the Lower Earnings Limit
  • earnings between the Lower Earnings Limit and Primary Threshold
  • earnings between the Primary Threshold and Upper Earnings Limit.

Changes are also being made to remove the need for employers to report the SCON (Scheme Contracted-out Number) and ECON (Employers Contracted-out Number) as they will no longer be needed once contracted-out contributions are abolished.

Consequential changes are also needed to various regulations in the SSCR to remove references to contracted-out contributions and simplify the administrative rules for calculating whether someone has overpaid contributions and the refund due when the person was contracted-out.

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