ECH22103 - Settlement - Primary Class 1 NICs: Recovery from a Director or Employee

Regulation 86, Social Security (Contributions) Regulations 2001

In simple terms, this legislation allows the transfer of unpaid primary NICs liability from the employer to the employee to take place. This will be considered simultaneously with a direction under Regulation 72(5) Condition B ( ECH22101) or Regulation 81(5) ( ECH22102) of the PAYE Regulations by a PAYE Directions Unit.

From 6 April 2004, an amendment to Regulation 86 of the Social Security (Contributions) Regulations (SSCR) 2001 allows you to consider the circumstances where

• an employee knew of a wilful failure by the employer to pay primary Class 1 NICs, and
• the employer did not recover the primary NICs from the employee.

These circumstances approximate to those used to recover tax from an employee ( ECH22100, ECH22101 & ECH22102) and consequently tax and primary NICs under- deductions in relation to the same earnings will be considered at the same time.

You should note at this point that the amendment to Regulation 86 was not retrospective and only those earnings received after 6 April 2004 can be considered for decision.

If HMRC makes a decision that Regulation 86 applies, the employee, not the employer becomes liable to pay the unpaid primary NICs. The decision is made under Section 8(1)(c) of the of the Social Security Contributions (Transfer of Functions) Act.

Decisions under Section 8(1)(c) Social Security Contributions (Transfer of Functions) Act 1999

If you are satisfied that the provisions of Regulation 86(1)(a)(ii) Social Security (Contributions) Regulations 2001 apply in a particular case then a decision is made to that effect.

Section 8(1)(c) Social Security Contributions (Transfer of Functions etc.) Act 1999 provides for an Officer of the Board to decide whether a person is or was liable to pay contributions of any particular class and, if so, the amount of that liability – see DAG0501 for more information on decision categories.

The issue of a Section 8(1)(c) decision in this respect results in

• removing the employer’s liability to pay the primary NICs under paragraph 3(1) of Schedule 1, Social Security (Contributions) and Benefits Act (SSCBA) 1992, and
• makes the employee liable under Section 6(4) SSCBA 1992 so you can
• • recover the primary NICs (and related interest) from the employee by virtue of paragraph 17A, Schedule 4, SSCR 2001.

A decision is subject to the appeal provisions contained within the Social Security Contributions (Decisions and Appeals) Regulations 1999.

For more information see

• INS8700 onwards, and
• NIM01000CO for primary Class 1 NIC

Action by Caseworker

See ECH22104

Penalties for incorrect returns

If the evidence gathered suggests the employer has not been negligent see ECH21010

If the evidence gathered suggests the employer has been negligent see ECH21011