Refunds: retrospective change of employment status - application of Section 61A SSCBA 1992
Section 61A of Social Security Contributions and Benefits Act 1992
Section 61A of the SSCBA 1992 only applies where:
- an individual has paid Class 1 NICs which, it later turns out, were paid in error because they were not an employed earner; and
- prescribed conditions are satisfied.
Section 61A does not apply to wrongly paid secondary Class 1 NICs; so an engager who wants a refund of such NICs is subject to the normal rules.
The prescribed conditions for the application of section 61A of the SSCBA 1992 are set out in the Social Security (Additional Pension)(Contributions Paid in Error) Regulations 1996 (SI196/1245) and the Social Security (Additional Pension)(Contributions Paid in Error) Regulations 1996 (Northern Ireland) (SI196/188).
The prescribed conditions for the application of section 61A of the SSCBA 1992, in the case of an individual can be found in Regulation 2 of the above regulations. These are that:
- HMRC is satisfied that the error was not made with the individual’s consent or connivance or attributable to any negligence on the individual’s part;
- none of the contributions in question have been returned to the individual in accordance with regulation 52 of the Social Security (Contributions) Regulations 2001 (SI 2001/1004) (which provides for the return of contributions paid in error); and
- by the date on which the individual reaches pensionable age, or such later date as HMRC considers reasonable, the individual has not notified HMRC in writing that they do not want wrongly paid NICs to be taken into account in calculating their Additional Pension entitlement.
The last point is significant, as it means that unless the individual states they do not want the wrongly paid NICs taken into account for Additional Pension purposes, in essence this will mean they want a refund, then those NICs will be taken into account and left undisturbed on the individual’s NI record.
Therefore, before section 19A of the SSCBA 1992 takes effect (up to a maximum of 24 months) an individual can seek to leave the erroneously paid primary Class 1 NICs on their NI record to count for Additional Pension purposes (subject to the prescribed criteria being satisfied). Once section 19A of the SSCBA 1992 takes effect (maximum of 24 months) the erroneous Class 1 NICs will remain on the individual’s NI record anyway.
An employer approaches HMRC on 27 September 2011 and requests a refund of NICs from 6 April 2004 as they believe their employees should be recategorised as self employed from that date. HMRC agrees that the status should be changed and applies Section 19A.
The employer receives a refund of secondary NICs:
- for the full 2010-2011 tax year, and
- the current tax year up to 27 September 2011
The employees have the option of the same refund or to leave the contributions up to 27 September 2011 of the current tax year on the account and they will count for state benefit
The Class 1 NICs prior to 6 April 2010 are considered correctly paid and remain on the employees accounts.