My client has had a bill from HMRC for the Class 1 NIC (National Insurance Contributions) under deducted from their employee for the current and last 6 tax years.
Can my client recover any of the primary (employee) Class 1 NIC from their employee?
A limited recovery may be possible.
Social Security (Contributions) Regulations Schedule 4, paras 6 and 7 (SI 2001/1004)
This legislation only allows the employer to recover some underpayments of primary Class 1 NIC from their employee where the “the under-deduction occurred by reason of an error made by the employer in good faith” (paragraph 7(4)(a)).
The employer is then permitted by statute to double the employee’s primary Class 1 NIC until the end of the year following the year of assessment in which the error arose.
- the employer can only make extra deductions to recover the primary Class 1 NIC from the employee in the remainder of the tax year that they made the mistake and the year after.
- the employer cannot recover more than the amount of primary Class 1 NIC the employee owes in a month (so the employee pays no more than double their normal contribution).
For example, the employee is due to pay primary Class 1 NIC of £20 on their pay for this month. So, the maximum extra deduction the employer can make is £20.
This would be achieved by deducting the employee’s actual primary Class 1 NIC due for the month of e.g. £20.00. You would then deduct a further £20.00 from the employee’s net pay. The further £20.00 would be payment towards the Class 1 NIC recovery.
If the error was made on 30 April 2020. The employer would be able to make the extra deductions during the period from 1 May 2020 to 5 April 2022, or until the underpayment is recovered, whichever comes first.
Any remaining Class 1 NIC under deduction cannot be recovered from the employee and would be at the employer’s own expense.
In association with Croner Taxwise
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