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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: settlement: posting (allocating) contributions to an employee’s NI account - exceptions to treating contributions as ‘treated as paid’

NIM12115 explains that NICs cannot be treated as paid where it is established that there has been ‘Consent or Connivance’ on the part of the employee.

In employer compliance terms this would apply where it has been clearly established from enquiries that the employee/individual was in collusion with the employer/engager and content to

  • be treated as self-employed, or
  • as casual labour, or
  • to receive payments free of tax and NICs, for example

    • overtime
    • top-up payments
    • off-record payments
    • disguised expenses

NIM12116 suggests that NICs cannot be treated as paid if any part of the failure to pay NICs can be attributed to the negligence of the employee.

It would be difficult to establish such a scenario in most cases unless the employee was in a position to manipulate the employer’s payroll and accounting systems and benefit personally from the actions.

The same cannot be said of directors. The Companies Act 2006 requires a director to look after the interests of the company’s employees and to exercise reasonable care, skill and diligence. This means that a director will usually be responsible for making sure that payments of NICs are made to HM Revenue & Customs (HMRC) and that company records are accurately maintained. Because of this a director will normally be presumed to be negligent and a director will need to show that they took positive action to avoid any underpayment of their NICs liability in order to rebut this presumption.

You should be alert to the situation and establish the reasons why a failure to pay has arisen. See NIM12117.

See also

NIM12119 regarding removing NICs from the NI Account,

  • NIM12127 and COG915195 regarding transferring recovery of unpaid personal primary Class 1 NIC to the employee or director, and
  • NIM12201 onwards and COG915175 regarding Personal Liability Notices (PLN) in cases where directors have been considered to have acted fraudulently or negligently in the non payment of primary and secondary contributions.

Note: Special Investigations (SI) are responsible for the issue of a PLN.