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HMRC internal manual

Debt Management and Banking Manual

Debt and return pursuit: NIC: class 1 NICs: National Insurance avoidance schemes

National Insurance avoidance schemes

Debts arise as a result of compliance activity and are in addition to the NIC debts on BROCS.

Before October 1985 an upper earnings limit applied to both employees and employers National Insurance. This meant there was a ceiling on the amount of NICs both parties were due to pay.

The abolition of the upper earnings limit for employers’ secondary NICs meant that employers had to pay secondary NICs on all employee earnings above the upper earnings limit. To avoid this increase in costs, employers began making payments of non-cash remuneration.

It is usually secondary NICs that the employer is seeking to avoid, but some cases will also include a liability for employees’ primary contributions. There may also be an associated tax debt under Regulation 80 Income Tax (Pay As You Earn) Regulations 2003.

Non-cash remuneration

Employers have used a variety of arrangements and schemes over many years, in the belief that if the employee was paid by way of an asset rather than money, it would avoid Class 1 liability. There are numerous schemes involved such as gold bullion, gold coins, oriental carpets, platinum sponges etc. Other schemes involve a series of financial arrangements or transactions, for example insurance policies, trade debts or offshore trusts.

Appeal procedure

Employers who have used avoidance schemes have been issued with a Section 8 decision, and the NICs debt is under appeal (see DMBM527150).

Even if the NICs debt is under appeal, and recovery action cannot commence, the NICs and any interest are still subject to limitation. HMRC must therefore take protective (claim) action to ensure that any determined NICs debt can be enforced (see DMBM525200).