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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Earnings Periods: Notifications & directions: Their purpose

Regulations 3(2B), 30 & 31, SS(C)R 2001

The adoption of certain pay practices by employers can result in liability forcontributions being avoided or greatly reduced, either intentionally or not. This isbecause the earnings period applied to that pay practice could reduce or eliminate aliability that would otherwise exist if the earnings were paid differently. To counteractthis, the Social Security (Contributions) Regulations 2001 allow the Department to director give notice to an employer to use a different earnings period.

These directions and notices do not, and cannot, require the employer to change the way inwhich he pays an employee. What they do require is the employer to change the earningsperiod applied to those earnings and to commence calculating NICs using the new earningsperiod from a specified date. Where a new earnings period is notified it applies equallyto the calculation of primary and secondary NICs.

Directions and notices are normally issued by an officer of the Board following anemployer compliance review but either an earner or a secondary contributor can request oneat any time.

Where the issue of a direction or notification is considered appropriate both the employerand any affected employee is first notified of the Department’s intention to issue adirection or notice. This affords both parties an opportunity to provide reasons why adirection/notification is not appropriate. The direction or notification itself is thenissued by means of a decision which carries a right of appeal to the Tax Commissioners.

The issue of decisions and any resulting appeals are dealt with in the same manner as anyother NIC decision and appeal. Full guidance on issuing NIC decisions and dealing withappeals is provided in the Decisions and Appeals Guide.

The three direction/notification types are:

Regulation 3(2B) SS(C)R 2001

This provision allows the Department to change the earnings period to be applied to apay practice which, although perfectly legitimate, is likely to affect anindividual’s earnings factor for benefit purposes. A notification under regulation3(2B) can be issued if the greatest part of an employee’s earnings is normally paidat the longer of two or more regular intervals of payment - see NIM09510onwards.

Regulation 30

This provision allows the Department to decide any question relating to a person’searnings related contributions, if the pay practice used by the secondary contributor

  • reduces or avoids liability; and
  • the Department considers it abnormal for the employment.

This provision is mainly used against pay practices which appear to be designed toavoid contributions - see NIM09600 onwards.

Regulation 31

This provision allows the Department to issue a direction changing a pay practice whichreduces or avoids liability due to unequal or irregular payments - see NIM09650 onwards.

Authorisation of Notifications and Directions

Band C Managers authorise regulation 3(2B) notifications and regulation 31 directionsin consultation with TSMs. Authorisation of regulation 30 directions is reserved toPT(Technical) Newcastle. Managers should be wary of implying that an employer isdeliberately avoiding or reducing liability unless it is clear that the employer ismanipulating a pay practice.

For example, although a notification under regulation 3(2B) may be issued to change theearnings period to be applied to the longer or longest interval the employer and employeeare in fact paying NICs in accordance with legislation by applying the shorter interval.