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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: primary class 1 NIC - 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. It should be considered simultaneously with a direction under Regulation 72(5) Condition B (COG915185 or Regulation 81(4) of the PAYE Regulations COG915190, by Specialist Employer Compliance (SEC) or Specialist Investigations (SI) - see COG915200.

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.

Note: The amendment to Regulation 86 was not retrospective and only those earnings received after 6 April 2004 can be considered for a 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) SSCR 2001 apply in a particular case then a decision should be 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.

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.

The employee has a right of appeal because the 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 COG915200.

Penalties for incorrect returns

If the evidence gathered suggests the employer has not been negligent see COG914025.

If the evidence gathered suggests the employer has been negligent see COG914030.

Claiming Compliance Revenue

See COG915690.