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HMRC internal manual

National Insurance Manual

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HM Revenue & Customs
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Earnings Periods: Directions issued in accordance with regulation 31, SS(C)R 2001: General

If liability for Class 1 NICs is avoided or reduced because of a pay practice involvingirregular or unequal payments, the Department can decide to direct how such paymentsshould be treated. This is achieved by issuing a direction in accordance with regulation31 of the Social Security (Contributions) Regulations 2001.

To issue a direction under regulation 31 there does not need to be a deliberate intentionon the part of the employer to reduce the NIC liability. Regulation 31 also contains thenecessary discretion to enable the Department to apply a monetary yardstick in determiningwhether or not a case may be suitable for the issue of a direction.

Therefore, the Department has decided that, as a general rule, in order to excluderelatively minor NIC amounts, where the pay practice reduces the amount of NICs payable byat least £250 a year, a direction should be considered.

But, having set such a cash threshold, this does not preclude the Department fromissuing directions in cases which fall outside the criteria. In fact, since regulation 31confers a discretion to act, , there may be instances where, even though the monetarycriterion is satisfied, the Department still does not feel it would be appropriate toissue a direction. In short, the most important factor is that the issue of a regulation31 direction is discretionary and a direction should only be issued if the case isconsidered to be “suitable”.

It is not possible to lay down precise and simple rules for applying regulation 31directions because the circumstances in which it can be applied vary widely.

Although discretion can be applied where the Department itself is considering the issue ofa direction under regulation 31, if either the earner or the secondary contributorrequests a direction, one must be given. If such a request is made, the decision may,depending upon the facts of the case, provide that a direction is not appropriate.

Example

A notification under regulation 31 can be considered if an employee receives:

  • a low weekly wage
  • monthly sums on an irregular basis.
  • Unlike regulation 3(2B) directions, the earnings paid at the longer interval do not need to be greater than those paid at the shorter or shortest interval, In addition, regulation 31 does not require the two pay periods to be regular.

Although there is no definition of what is meant by “irregular” or“unequal” within the context of regulation 31, it is usually clear from the casewhether the pay practice provides, and will continue to provide, uneven or erraticpayments of earnings.

It is important to recognise, however, that many people will receive varying amount of payin each earnings period. This most often occurs where regular overtime is available to theearner or varying amounts of non business related expenses are paid with the normalsalary. An earner who is free to decide how much overtime is worked will, as aconsequence, receive earnings which will vary according to the amount of overtime worked.These unequal payments may feature throughout the tax year or they may be confined to busyperiods, such as Christmas. Where there is a clear and acceptable reason for the unequalpayments, a direction under regulation 31 would not be appropriate.

Whilst it is not possible to provide details of every situation in which a direction maybe appropriate, NIM09653 provides some example where adirection may be appropriate.