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HMRC internal manual

Debt Management and Banking Manual

Debt and return pursuit: NIC: class 1 NICs: NICO cases - employers’ debts from NICO

This section applies to Class 1 debts created by NICO following their end of year checks. These debts are in addition to the Class 1 National Insurance returned on the P35 and collected alongside PAYE.

NICO - How the debts arise

After the tax and NICs on the P35 Employer’s Annual Return have been captured by the processing office, P14 information is passed to NICO to check. NICO confirm that the correct amount of NICs have been paid and ensure that contributions are credited to the individual’s National Insurance account.

The NIRS 2 computer system carries out a number of checks on the P14s to confirm that the contributions paid are in ratio to the earnings recorded, and any failures are taken up for further investigation. These “Ratio Check Failure” cases may be genuine errors where figures have been entered incorrectly, or out of alignment, and most cases are usually resolved quickly.

However, the checks on the forms P14 may also reveal errors where National Insurance is underpaid.

Compatibility failures

These may be summarised as:

Married women cases

In the past, married women could elect to pay National Insurance at a reduced rate and were issued with a certificate to confirm this. Debts arise where the employer deducts reduced rate National Insurance, when the certificate is invalid.

Employees over retirement age

If an employee continues working after the normal state retirement age, employee’s primary National Insurance is no longer due but the employer must continue to pay secondary contributions. National Insurance debts arise as many employers fail to pay their secondary contributions correctly, particularly when they are operating Contracted-Out schemes.

National Insurance Services to the Pensions Industry Group (NISPI)

These cases are where the employer has incorrectly deducted Contracted-Out National Insurance, as opposed to Not-Contracted Out National Insurance. The total contributions due are lower at Contracted Out rates, and so an underpayment arises.