Consultation response: Aligning the time limits for recovery of NICs with Income Tax

ATT has responded to an HMRC consultation on aligning the time limits for recovering National Insurance contributions (NICs) with those applying to Income Tax. 

At present, PAYE and NICs arising from the same payroll item are subject to different statutory deadlines, separate appeal arrangements and different debt-recovery processes. In our response we suggested that there is a strong case for bringing PAYE Income Tax and related NICs liabilities within a single legislative framework. This could provide employers and advisers with one coordinated determination, common time limits, linked review and appeal rights, and a coherent recovery process.

If the government is not ready to undertake wider legislative consolidation, we agreed that a statutory Notice of NICs Liability could be introduced as an interim measure. However, the notice would need to identify clearly the relevant tax years, employees, NICs classes, calculations and legal basis of the liability. Recipients should also be told how and when they can challenge it, and HMRC should have to demonstrate that the notice was validly served.

We raised the concern that, once a valid notice has been issued within the relevant statutory period, HMRC could retain the ability to recover the debt indefinitely. We therefore recommended that recovery should be suspended automatically while a review or appeal is under way and that HMRC should be required to pursue debts without unreasonable delay. Safeguards would also be needed to prevent duplicate recovery through separate PAYE and NICs processes.

The consultation also proposes reducing the general period for NICs repayment claims from six years to four years. We recommended transitional protection so that existing repayment rights are not lost, together with a statutory relief mechanism comparable to Income Tax overpayment relief for appropriate late claims.

Reform must also preserve employees’ rights. NICs decisions can affect contribution records and entitlement to the State Pension and other contributory benefits. Employees should receive enough information to understand any changes, retain practical appeal rights and, where appropriate, be able to make voluntary contributions to protect a contribution year.

Also highlighted was the need for specific Scottish provisions. Any new notice or combined liability must work with the Prescription and Limitation (Scotland) Act 1973 and clarify when a debt becomes enforceable, when prescription begins, and whether disputes belong before the tax tribunal or the Scottish courts. We recommended a Scottish legal working group and a full impact assessment before implementation.

Overall, reform should produce a simpler, fairer and more coherent system, supported by clear guidance, proportionate transitional rules and adequate HMRC resources.