Accompanying Report for Social Security (Amendment of Law No.6) (Jersey) Regulations
The Island faces a substantial increase in both the number and proportion of older residents over the next 30 years, with care costs predicted to more than double by 2044. In response to this issue, in July 2011 the States approved the Long-Term Care (Jersey) Law 2012. Details of the operation of the proposed scheme have now been set out in Proposition P.99/2013, which will be debated before these Regulations are considered.
The introduction of a Long-Term Care (LTC) scheme is designed to share long-term care costs more fairly across the community and the scheme will establish a clear and simple process to help individuals and their families understand the choices available and plan for the cost of long-term care. The proposed new scheme will provide financial support to Jersey residents who have significant long-term care needs and who are being cared for either in their own home or in a care home.
The report on the new Long-Term Care scheme, P.99, includes details of the contributions that will be levied on local residents and paid into the new LTC Fund. Section 3 of the P.99 report (pages 9-11) outlines the proposal to base LTC contribution liability on the Income Tax liability of an individual. This will include an allowance for marginal relief as in the Income Tax system but, unlike Income Tax, the maximum LTC contribution will be capped using the Social Security upper earnings limit (£152,232 in 2013).
Section 12 of the P. 99 report proposes a timetable for the phased introduction of these contributions:
- no contributions to be levied in 2014,
- an LTC rate of 0.5% in 2015 and
- an LTC rate of 1% starting from 1 January 2016
These Regulations make changes to the Social Security Law and the Income Tax Law. A new type of contribution – the LTC contribution - is added to the Social Security Law and the liability to pay the contribution and the rate of the contribution are set out. At the same time, the collection process for the new contribution is described in the Income Tax Law, to allow the joint collection of Income Tax liability and Long-Term Care liability by the Taxes Office, in particular with respect to the use of the existing ITIS system.
If these Regulations are approved, the effective rate notices to be issued by the Taxes Office in late 2014 for 2015 will identify an ITIS rate that represents a combined liability for both Income Tax and the initial Long-Term Care contribution rate of 0.5%. The effective rate notices for 2016, issued in late 2015, will include the combined liability for Income Tax and a Long-Term Care contribution rate of 1%.
The remainder of this report details the changes to the Social Security Law, the Income Tax Law, and the Long-Term Care Law that are covered by these Regulations.
Amendments to the Social Security Law
Regulations 1 and 2
These Regulations define various terms. In particular the Income Tax Law is referred to as the 1961 Law. Note that the terms “Long-Term Care Fund” and “Long-Term Care Fund allocation” have already been added to Article 1 of the Social Security Law through the Long-Term Care Law itself.
Regulations 3 and 4
Regulation 3 adds a new paragraph to Article 3. The existing Article 3(1) provides a definition of an insured person under the Social Security Law. At present, individuals can only be insured if they are resident in Jersey. The new Article 3(1A) allows for the situation in which an individual can be deemed to be resident in Jersey, to allow them to be an insured person for the purposes of Long-Term Care contributions. The details of this situation will be set out in a Ministerial order. This will only apply in the unusual circumstance of a married couple or a civil partnership in which one partner is resident in Jersey and the other partner is non-resident and the non resident partner has a Jersey Income Tax liability, relating to the joint income of both partners. The non resident partner will not be required to pay other Social Security contributions and will not be eligible to claim Social Security benefits.
Regulation 4 amends Article 4[1] and introduces a third class of contribution which is the Long-Term Care (LTC) contribution. This contribution is payable by all insured persons (both class one and class two, working age and pension age).
Regulation 5
This Regulation introduces three new Articles into the Social Security Law to set out the liability to pay LTC contributions. Existing Articles 5, 6 and 7 of the Social Security Law define the liability for class one contributions and explain how they are collected and Article 8 provides this information for class two contributions.
Articles 8AA, 8AB and 8AC give these details for the new LTC contribution.
Article 8AA confirms that the calculation of the LTC contribution is set out in schedule 1C of the Social Security Law (see below) and that the liability to pay contributions runs from 1 January 2015.
It also provides for an order to determine the liability of an individual to pay LTC contributions. A new order under the Social Security Law will clarify these rules as follows:
An individual will have no liability to pay LTC contributions if they are not liable to pay Income Tax in that year. An exception will also be made for non-resident landlords who may have a Jersey Income Tax liability. In addition, there are two groups of people who may have a local Income Tax liability but are not included as insured persons under the Social Security Law. These are children under school leaving age and individuals who are working in Jersey under a contract of employment from another jurisdiction, and who continue to pay contributions in respect of the Social Security legislation in that other country. These groups will not be liable to pay LTC contributions.
Article 8AB creates an obligation on an employer who is making deductions from wages due to their employees in respect of Income Tax liability under the ITIS system, to also collect instalments of LTC contributions.
Article 8AC creates a similar obligation in respect of a building contractor who is making deductions from payments made to subcontractors.
Regulation 6
This Regulation amends Article 11 of the Social Security Law. Article 11 allows for various calculations to be made by order, and for other administrative purposes. In particular, there is already an obligation for employers to maintain records and this obligation is now extended to building contractors.
Regulation 7
This Regulation amends Article 30[2]. Article 30 currently explains how money collected under the Social Security Law is allocated to the Social Security Fund and the Health Insurance Fund. The proposed amendments create a new allocation so that the Long-Term Care contributions collected under the Social Security Law are paid into the Long-Term Care Fund.
Regulation 8
This Regulation amends Article 47 which currently allows individuals who are over 60 years old to opt out of paying Class 2 Social Security contributions. This opt out will continue to be provided in respect of class two contributions but Long-Term Care contributions are not age-related and will be levied on adults of all ages (if they have an Income Tax liability).
Regulations 9, 10 and 11
Schedule 1A of the Social Security Law sets out the details of the calculations for Class 1 contributions and Schedule 1B sets out similar details for Class 2 contributions. Regulations 9 and 10 clarify that Schedules 1A and 1B only relate to Class 1 and Class 2 contributions. Regulation 11 creates two new schedules 1C and 1D. Schedule 1C sets out the definition of income and the calculation of liability based on that income for the LTC contribution. It also identifies the LTC percentage, which is set at 0.5% for 2015 and at 1% from 1 January 2016.
The individual LTC liability is based on the lower of two options:
Option A - in this option, the LTC contribution is based on the LTC percentage of the person's taxable income in that year. In particular,
- if the individual has no Income Tax liability, they will not be required to pay any LTC contribution
- if the individual is a marginal rate taxpayer, their LTC contribution will be reduced in the same proportion as their Income Tax liability has been reduced
- If the individual is married, the liability for LTC contributions will follow the rules under the Income Tax Law, for example, the income of a wife is considered as part of the husband’s income for Income Tax purposes.
Option B - this option limits the LTC contribution by reference to the upper earnings limit in respect of Class 1 contributions (£152,232 pa for 2013). In option B the gross income of each spouse or civil partner is considered separately and is capped at the upper earnings limit. This creates a total capped income against which the LTC percentage is applied.
For example, Partner 1 has a gross income of £100,000 pa and Partner 2 has a gross income of £200,000 pa. They have no children and do not receive any tax allowances. Their combined taxable income is £300,000 pa. In 2015, option A will set a contribution of £300,000 x 0.5% = £1,500.
Under option B, the gross income of Partner 2 is capped at £152,232; the gross income of Partner 1 is below the limit and is unchanged. This is a total capped income of £252,232 and in 2015, option B will set a contribution of £252,232 x 0.5% = £1,261. As this is the lower amount, this amount will be charged.
Schedule 1D gives details of the timing of notices and the collection of LTC contributions. In addition, the calculation of the LTC effective rate (based on the calculation of the ITIS effective rate) is set out. The Schedule also deals with the situation in which an adjustment to an Income Tax liability is needed, following an appeal or an administrative adjustment. In any of these cases, the adjustment will be applied proportionately to the corresponding LTC contribution.
Amendments to the Income Tax Law
Regulation 12(a) and (b)
These paragraphs extend the Income Tax Law and the role of the Comptroller of Income Tax so that the Comptroller has an obligation to collect LTC contributions on behalf of the Minister for Social Security and to transfer the contributions collected to that Minister.
Regulation 12 (c)
This Regulation creates a new Article 49B under the Income Tax Law. Article 49B(1) provides a cross reference from the Income Tax Law to the Social Security Law and to the definition of an LTC contribution.
Article 49B (2) deals with the situation in which an individual receives bills from the Taxes Office – for example, pensioners who pay Income Tax, sole traders and investment holders. The liability for the LTC contribution will be added to these bills, which are typically sent twice a year. If the Income Tax liability of the individual is adjusted or waived, the LTC contribution will be similarly adjusted or waived.
For example, a single pensioner is a full rate taxpayer and has an Income Tax liability of £12,000 a year, which is paid in two instalments of £6,000 each. The total LTC contribution for 2015 is £300 and will be split into two instalments of £150 each. The taxpayer will receive two bills during year, each one for £6,150.
Article 49B(3) and (4) incorporate the requirement to make deductions in respect of LTC contributions into the existing ITIS responsibilities of the employer. Article 41B of the Income Tax Law sets out these details. In particular, the effective rate for Income Tax purposes and the LTC contribution effective rate are calculated separately and then added together to set the combined effective rate used within the ITIS system. The combined effective rate is always expressed as a whole number and any fractional part is rounded up to the next whole number.
For example, suppose a marginal rate taxpayer has an Income Tax effective rate of 14.4% and an LTC effective contribution rate of 0.36% in 2015. These percentage rates are added together to give 14.76% and finally rounded up to 15% as the combined ITIS rate for that individual in 2015.
Article 49B(5) sets out the procedure for building contractors making deductions from payments made to sub-contractors. In this case, Income Tax deductions are either made by the building contractor at the full rate of 20% or an exemption certificate is issued to the sub-contractor, who is then responsible for paying Income Tax directly to the Taxes Office. As with ITIS deductions, in future if the building contractor is collecting deductions at 20%, then the contractor will also collect a further 1% LTC deduction.
In 2015, the maximum LTC rate is only 0.5% and a sub contractor who is not able to claim a full exemption certificate will be able to apply for an LTC exemption certificate once they have made LTC contributions equal to the maximum level for 2015 (i.e. the maximum amount payable at 0.5%).
Articles 49B(6) and 49B(7) provide for amounts received either through direct billing or the ITIS system to be split so that the LTC contribution is separated out and transferred to the Minister for Social Security.
Article 49B(8) makes similar arrangements for LTC contributions to be identified and transferred to the Minister for Social Security when they are collected from building contractors.
Article 49B(9) confirms that it is not possible to take an appeal against the amount of an LTC contribution under the Income Tax Law. This appeal right is provided under the Social Security Law.
Regulation 12(d)
This Regulation inserts a new Schedule 1A into the Income Tax Law. The schedule sets out the modified version of Articles 41A, 41B, 41C and 41E, incorporating the revisions made under the other Regulations into the current Articles. This schedule (known as a Keeling Schedule) makes it easier to read the proposed Regulations in the context of the existing legislation. As explained above the revised Regulations under the Income Tax Law will only apply to adults who are also insured persons under the Social Security Law. For other Income Tax payers the existing Income Tax rules will continue to apply.
Changes to Long-Term Care Law
Regulation 13
When the Long-Term Care Law was approved by the States, the intention was to collect contributions from working age adults through a Social Security type contribution which would be set out in schedules 1A and 1B. The Regulations now proposed provide for a new schedule 1C, setting out the Long-Term Care contribution details and the previous references are no longer needed.
Regulation 14
These Regulations will come into force in two phases: from 1 July 2014, most of the Regulations will be brought into force to allow the Comptroller of Income Tax to send combined effective rate notices in the autumn of 2014, prior to the introduction of the contribution liability on 1 January 2015, when the remainder of Regulation 12 will be effective to allow contributions to be collected.
Ministerial Order
A Ministerial order will be prepared to accompany these Regulations, to provide additional details as to the liability to pay Long-Term Care contributions in respect of certain groups of individuals.
Financial and manpower considerations
The development costs of the LTC scheme are being met through existing departmental budgets. Ongoing costs will be met through the LTC Fund itself. It is estimated that an additional 9.5 FTE will be required to administer the new scheme.
L:\Strategy & Policy\Policy\Political & Ministerial (7.0)\Ministerial Business (7.1)\Ministerial Decisions (7.1.1)\2013\0108 - Social Security Law Amend of Law No 6 Regs\WR - Social Security (Amendment of Law No. 6) (Jsy) Regulations 201.docx
gov.je