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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: settlement: time limits for recovery: legislation and protective action

NICs are a civil debt. Recovery of NICs is subject to the restrictions of

  • The Limitation Act 1980 for employers in England and Wales
  • The Limitation (Northern Ireland) Order 1989 for employers in Northern Ireland
  • The Prescription and Limitation (Scotland) Act 1973 for employers in Scotland.

The time allowed to enforce payment of a debt by civil proceedings is restricted to

  • 6 years from the date on which the cause of action accrued in England, Wales and Northern Ireland
  • 20 years from the date on which the cause of action accrued in Scotland.

So, unless there is evidence of fraud or deliberate concealment or mistake (section 32 of the Limitation Act 1980, section 71 of the The Limitation (NI) Order 1989 and section 6 of the Prescription and Limitation (Scotland) Act 1973) NICs are subject to the restrictions of the relevant legislation.  In Scotland there are 20 years allowed to enforce a NICs debt and fraud; deliberate concealment or mistake do not extend this.

The calculation for these limits is not tax year based.

For example, in England, Wales and Northern Ireland, recovery of earnings paid to 30 June 2012 would be timed barred from 20 July 2018, as follows:

  • tax month ends 5 July 2012
  • date due for payment to HMRC by 19 July 2012
  • six year period starts 20 July 2012
  • six year period ends 19 July 2018
  • NICs time barred from 20 July 2018.

Action by caseworker

To decide which act applies you first need to establish where the employer is based.  For limited companies this is where the registered office is located.  If the registered office is in Scotland the registration number has ‘SC’ in front of it.  For other employers this is the location of their business address. 

You should be aware that in the majority of cases, NICs will become time barred on a monthly basis during the working of a case. You should therefore be alert to this and plan to avoid the NICs becoming time barred by

  • seeking an early payment on account of the ‘specific’ NIC liability and accrued interest due in each year before it becomes time barred
  • asking the employer to confirm in writing that that they acknoweldge the full NIC liability and that their intention is to cover the ‘specific’ NIC liability due in each year.

Note: Where the employee is liable to pay their own primary Class 1 NICs, for example locally engaged Embassy employees, interest is not due, see DMBM520110.

Acknowledgement and payment received

If the employer acknowledges the full liability and you receive payment in full or part payment before the limitation period ends this satifies section 29(5) of Limitation Act 1980, section 57 The Limitation (Northern Ireland) Order 1989, and section 10 Prescription and Limitation (Scotland) Act 1973. This means that the time limitation period re-starts from the date of the acknowledgment.

Example 1

During a compliance check you established a NIC liability of £5,000 that is approaching 6 years old. The employer makes a payment of £1,000 against this debt and acknowledges the full £5,000 liability.

The employer’s registered office is in Wales so this gives us 6 years to recover the remaining balance.

If, at a later date, the employer disagrees with the NIC liability, we will have to protect the debt before the limitation period ends and issue a Section 8 decision.

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Example 2

During a compliance check of an employer whose business address is in Northern Ireland, you established a NIC liability of £5,000 that is approaching 6 years old. The employer makes a payment of £1,000 against the debt but does not acknowledge the full liability.

In this case you will need to protect the debt before the time limits elapse.

No acknowledgement and payment received

In the absence of the above and depending on when the NICs will become time barred you should give the employer as much warning as possible and

  • send letter EC23 (available via SEES- forms and letters) to the employer
  • invite the employer to make a payment specifically on account of the identified NIC and associated interest and confirm in writing that they acknowledge the full NIC liability
  • advise the employer they can make a payment for less than the full amount but

  • they should confirm in writing that they acknowledge the full NIC liability and that the payment is paid in part payment against the full NIC liability, and

  • interest will continue to be incurred on the oustanding balance

    • advise the employer that if a specific payment on account isn’t made and they do not acknowledge the full NIC liability, HMRC will seek to protect its ability to recover the arrears by taking court action, and will also seek to recover any court fees incurred from the employer (COG915230 - Court fees included in a settlement).

Note: Where it is not possible to give any advance warning (because the NICs are about to become time barred imminently) you should send the letter but adapt it to advise that protective action will be commenced simultaneously.

If the employer fails to make a specific payment on account as requested you should refer the case to the Senior Manager to consider

  • the issue of NIC Decisions for all NIC arrears identified (COG915155 - Settlement by NIC Decision)
  • the issue of Protective Claims for all NIC arrears identified and the interest thereon.

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Where a Protective Claim is appropriate the Senior Manager should arrange to

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The stencil includes a list of information and documentation which should be attached.

A separate record of the request for action should be maintained to make sure the claim is lodged and appropriate follow up action taken.

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Where it has not been possible to prevent the NICs from becoming time barred see COG915015 - Voluntary Restitution.