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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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Earnings periods: notifications issued in accordance with regulation 31, SS(C )R 2001: action by network: investigation

Deciding whether a direction is appropriate

Step 1

Determine that a pay practice exists which involves the employee being paid at irregular intervals or receiving unequal payments. Because a direction cannot be issued retrospectively, you must also be satisfied that the pay practice is expected to continue, at least in the immediate future.

Step 2

If, by imposing a different earnings period, it would have increased the total amount of NICs due for the employee in the relevant tax year by at least £250, you must then examine the facts of the case in order to determine whether, in your view, it is suitable for a regulation 31 direction. A direction would not be appropriate where, by coincidence, an employee had received a “one-off”, or a series of “one-off” payments in a particular tax year, even though this would have satisfied the monetary criteria in that year. Similarly, a direction would not be appropriate where there was a back-dated pay award following the conclusion of pay negotiations. This would not constitute a pay “practice” - it is an incidental element of the pay negotiation process(es)

There may be cases where the monetary criterion is not satisfied but where the pay practice appears to have been set up so as to reduce or avoid NIC liability. Such cases should be rare but, if so, consideration should be given to the issue of a direction.

Step 3

Having decided that a regulation 31 direction is appropriate, it should normally be applied only to those individuals who actually satisfy the criteria. However, if the pay practice is widespread throughout the company/organisation and it is confirmed that it has the potential to apply to other employees, then a direction may be given to include all those employees who may benefit from that practice.

Direction appears appropriate

Take the following action if the issue of a direction appears appropriate -

  • identify all the employees paid in the same way. Obtain details of the employees’ home addresses so that they can be told when a direction is to be issued
  • get full details of the amounts paid and intervals. You do not need to establish a pattern, but as much information as possible is helpful.
  • tell the employer that you will report the matter for consideration on how to treat earnings in order to calculate the amount of contributions payable. Directions cannot be issued with retrospective effect. The new earnings period will start from the date the Direction is issued
  • prepare a full report and refer in a file to the ECTM

Action by Band C Manager

The report should enable the Band C Manager to confirm, in consultation with the TSM, that a notification under regulation 31 is appropriate. A notification only applies to future earnings so the Manager will decide whether to issue it with effect from an immediate date or the beginning of the next tax year.

Direction does not appear appropriate

If, after investigation, the issue of direction does not appear appropriate the action to take will depend upon how the case arose.

Matter raised externally - decision requested by earner or secondary contributor.

If either the earner or the secondary contributor has requested a decision this must be given. The decision will be that no direction is appropriate. This will give either party an opportunity to appeal against the decision. The decision should be issued on forms DAA(1) and DAA(2) and copies placed on the file. Any appeal received as the result of the decision should be actioned in the same manner as any other NIC appeal. A suggested form of wording for such a decision can be found at draft decision 6 (see NIM Appendix 1). Where such a decision is issued draft letter 11 (see NIM Appendix 1) should accompany the decision issued to the employer and draft letter 12 (see NIM Appendix 1) should accompany the decision issued to the employee.

Matter raised internally

If the case arose as a result of a compliance visit but, after investigation, a decision does not appear appropriate, there is no need to issue a decision. Write to the employer explaining that, after considering the case, no change in the earnings period is required.