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HMRC internal manual

Compliance Operational Guidance

Alternative rights of recovery (PAYE directions): primary class 1 NICs: background: overview

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

  • an employee knew of a wilful failure by the employer to pay primary Class 1 NICs


  • the employer did not recover the primary NICs from the employee.

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

The amendment to Regulation 86 applies to earnings received after 6 April 2004, so only the years 2004-05 onwards can be considered for decision.

If HMRC does make a decision that Regulation 86 applies in a particular situation the employee, not the employer, becomes liable to pay the unpaid primary NICs. The provisions of this regulation are covered in detail at COG932490.

The decision is one where Section 8(1)(c) of the of the Social Security Contributions (Transfer of Functions) Act applies.  COG932500 provides further details. 

Decisions made under this Act contain the right of appeal and are subject to the provisions contained within the Social Security (Decisions and Appeals) Regulations 1999.

Direction caseworkers, as part of their normal review of cases, will only consider the recovery of under-deducted and unpaid primary Class 1 contributions in cases where a potential wilful failure to deduct PAYE tax has also been identified.

This section of the manual covers the end to end process to be used by staff when handling the NICs aspect of those cases.

Unless otherwise stated, it will be normal practice for any letters or enquiries in respect of potential under-deductions of primary Class 1 NICs to be incorporated into the correspondence issued in connection with the potential under-deduction of PAYE tax – see COG931100 onwards.

This section of the Manual is to be used in conjunction with the National Insurance Procedure Guidance (NIPG) and the Appeals Review Tribunal Guidance (ARTG)