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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Class 1 NICs: Earnings of employees and office holders: Training and similar costs: Working Neighbourhoods Pilot

Regulation 25 and paragraph 10 of Part VII of Schedule 3 to the Social Security(Contributions) Regulations 2001

The Working Neighbourhoods scheme commenced in pilot areas in April 2004.

The scheme aims to help people who are not actively looking for work to get work and tokeep it.

There are 2 types of payment available to participants in the scheme:

  • payments out of a Flexible Discretionary Fund. These payments are made to participants in the scheme by their Jobcentre Plus advisers. The payments which can be made are entirely flexible so as to meet the particular needs of the participant and remove whatever obstacle they face in securing work or remaining in work.
  • retention payments to participants who move into work. Participants who find work will be paid a lump sum after 13 weeks of employment and after 26 weeks of employment to encourage them to remain in work.

Payments out of the Flexible Discretionary Fund are not likely to be liable for Class 1NICs because they are not “earnings”. That is because the payments do not derivefrom employment since they are paid when the participants in the scheme are not in gainfulemployment. But payments which are made to reward participants in the scheme for remainingin work are “earnings”. See NIM02010 for generalguidance on what constitutes “earnings” for NICs purposes.

In view of the fact that at least some of the payments made under the WorkingNeighbourhoods pilot scheme are capable of attracting a liability for NICs, legislationwas introduced with effect from 6 April 2004 to exclude them from liability. Thelegislation can be found at paragraph 10 of Part VII of Schedule 3 to the Social Security(Contributions) Regulations 2001. There is therefore no liability for Class 1 NICs on anypayment made under the Working Neighbourhoods pilot scheme.