NIM09650 | Earnings Periods: Directions issued in accordance with regulation 31, SS(C)R 2001: General

Regulation 31 of the Social Security (Contributions) Regulations 2001 (SSCR 2001) (SI 2001 No 1004)

If liability for Class 1 NIC is avoided or reduced because of a pay practice involving irregular or unequal payments, HMRC can decide to direct how such payments should be treated. This is achieved by issuing a direction in accordance with regulation 31 of the SSCR 2001.

To issue a direction under regulation 31 there does not need to be a deliberate intention on the part of the employer to reduce the NIC liability. Regulation 31 also contains the necessary discretion to enable HMRC to apply a monetary yardstick in determining whether or not a case may be suitable for the issue of a direction.

Therefore, HMRC has decided that, as a general rule, in order to exclude relatively minor NIC amounts, a direction should be considered, only where the pay practice reduces the amount of NICs payable by at least £250 a year.

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

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

Although discretion can be applied where HMRC itself is considering the issue of a direction under regulation 31, if either the earner or the secondary contributor requests 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 case whether the pay practice provides, and will continue to provide, uneven or erratic payments of earnings.

It is important to recognise, however, that many people will receive varying amount of pay in each earnings period. This most often occurs where regular overtime is available to the earner or varying amounts of non business related expenses are paid with the normal salary. An earner who is free to decide how much overtime is worked will, as a consequence, 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 busy periods, such as Christmas. Where there is a clear and acceptable reason for the unequal payments, 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 a direction may be appropriate.