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HMRC internal manual

National Insurance Manual

Class 2 National Insurance contributions liability: Payment methods: Collection of Class 2 NIC Debts through the PAYE code

The Social Security (Contributions) (Amendment and application of Schedule 38 to the Finance Act 2012) Regulation 2013 added new regulation 63A to the Social Security (Contributions) Regulations 2001.

Regulation 63A, Social Security (Contributions) Regulations 2001

This regulation allows for unpaid Class 2 NI Contributions to be collected through a persons PAYE code. This is being introduced as an additional method of collection and will operate alongside and in addition to the current collection methods.

The PAYE code will be used to collect Class 2 debts where the individual will have a PAYE source of income for the following tax year.

The above regulation also determines the rate of the Class 2 contribution which will be applied to the debt to be coded out. This will be the highest rate in force between the weeks to which the date relates and ending with the day the PAYE code is determined.

The first debts to be collected in this way will be included in the coding notices for 2014/15 which will be issued in January 2014. Because the coding notices are produced prior to the start of the tax year in which they operate the regulations provide that the rate to be applied will be the rate in force at the time the PAYE code is determined.

This means, for example, that although the collection of the debt will take place during the 2014/15 tax year, the rate to be applied will be the rate in place for the 2013/14 tax year. This is in line with what happens currently where a time to pay arrangement is agreed.

In addition, changes will be made by DWP to their regulations so that any contributions collected by this method will be treated as paid on 5 April of the tax year in which they are collected. In addition where applicable the contributions will also be subject to the “late” paid penalty provision when they are posted.

Information on the new collection method has been included on Class 2 bills issued from the commencement of the 2013/14 tax year and where a debt is included in an individual PAYE Code the PAYE Coding Notice (P2) will include information on the amount of the Class 2 NICs debt that has been included for the forthcoming tax year and the period to which it relates.

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Choice of collection method of Class 2 NIC debts

The method by which a Class 2 debt is collected is purely for HMRC to decide. However, an individual can contact HMRC to pay the amount due if they do not want it collected by that method.

If at any time the individual decides up to the commencement of the tax year that they do not want the debt included in their tax code they can contact the Department and pay the full amount due to be collected and a revised coding notice will be issued.

Where a debt has been included in a persons PAYE code and they decide after the commencement of the tax year to which it applies that they want to pay the amount due to be collected they will have to pay the full amount regardless of any amount that may already have been collected under the PAYE code.

The amount of debt in the code will be adjusted immediately the payment is allocated to the customer’s record and a new P2 issued to adjust the amount collected through the remainder of the tax year.

Additional guidance is included in the National Insurance Procedural Guide (NIPG)