Applications for refunds of National Insurance contributions paid in error or claims for financial redress

Who should read this?

Those who engage lecturers, teachers, instructors or trainers in a similar capacity, particularly, vocational and recreational training providers, including First Aid Training Providers.

Trainers particularly in the vocational and recreational fields who were engaged by their training provider under contracts for services (self-employment contracts) but who had Class 1 (employees’) National Insurance contributions deducted.

Background

1. The Social Security (Categorisation of Earners) Regulations 1978 (the Regulations) made provision for treating lecturers, teachers, instructors or those in a similar capacity in traditional educational establishments, such as schools, colleges or universities etc, who were not employed under a contract of service (an employment contract) as employees for NICs purposes.
2. With effect from 6 April 2012 the relevant provisions of the Regulations were repealed so that the Regulations no longer apply to lecturers, teachers, instructors or those in a similar capacity.
3. However, prior to repeal, it is possible that earlier published HMRC guidance may have led some training providers particularly in the vocational or recreational sector to incorrectly apply the Regulations to payments made to trainers engaged under self-employment contracts. If the Regulations were incorrectly applied, Class 1 NICs may have been accounted for and paid to HMRC in error. HMRC will now consider claims for the refund of any incorrectly paid contributions. Such claims are limited by statute so that refunds may only be made in respect of the last two tax years or, where a decision was requested/challenged and this remains undetermined, the tax year in which the challenge was made and the preceding tax year.

Arrangements for claiming refunds of Class 1 National Insurance contributions paid in error

Who can claim refunds?

4. Refunds may be made by trainers or instructors, or those who engaged them, and where amounts of NICs were paid in error following HMRC's guidance. This is primarily going to affect those engaged in the provision of vocational or recreational training as set out in HMRC's guidance prior to repeal of the relevant provisions of the Regulations.
5. Refunds are not due where educational training providers applied the Regulations. This is because there is no dispute or doubt that the Regulations prior to 6 April 2012 applied to the providers of educational training. In this context educational training provider means a school, college, university or any such similar educational establishment.
6. Refunds are also not due where any trainer or instructor was engaged under an employment contract and Income Tax (PAYE) and Class 1 NICs were correctly accounted for.
7. Where a training provider owes HMRC any outstanding sums (including Income Tax, National Insurance contributions or VAT) any secondary Class 1 NICs refundable will, in the first instance, be set against those outstanding sums and only the balance repaid.

How do I know if I am entitled to apply for a refund?

Vocational and Recreational Training Providers

8. We believe there are likely to be three categories of training provider who may be eligible to apply for refunds:
   • First Aid training providers who were subject to a compliance intervention by HMRC and Class 1 NICs were recovered under the Regulations where those amounts of NICs were paid in error following HMRC's guidance: HMRC is corresponding directly with these training providers. However, if you fall into this category and have not received a letter you should contact HMRC in writing at the address provided below.
   • Other vocational and recreational training providers who were subject to a compliance intervention by HMRC, Class 1 NICs was recovered under the Regulations and where those amounts of NICs were paid in error following HMRC's guidance.
   • Any other First Aid training or other vocational and recreational training providers not the subject of a compliance intervention but who wrote to HMRC requesting a decision as to the NICs category under which their trainers should be included.

Applications for Refunds from Trainers and Engagers

9. Trainers who were engaged under self-employment contracts and who were subject to the Regulations by their training provider engager can choose not to have any primary contributions paid in error refunded to them but to let them count instead towards their contributory benefit entitlement as if they had been correctly paid. If a successful refund claim is received from a training provider which meets the statutory criteria, HMRC will write to the affected trainers asking them whether they wish the contributions refunded or not.
10. This does not prevent the engager from seeking a refund of the wrongly paid secondary contributions where one is due or the trainer notifying HMRC before they reach pension age that they now wish to apply for a refund. Any such claim in these circumstances would be subject to the statutory conditions for the claiming of refunds of erroneously paid contributions including those noted in paragraph 3 above.
11. Where trainers elect to have Class 1 contributions refunded, HMRC will offset the contributions refundable against the Class 2 and 4 National Insurance contributions correctly payable by virtue of the trainer's self-employed status. Additionally, where a trainer owes HMRC any outstanding sums (including Income Tax, NICs or VAT) any contributions refundable will be set against those outstanding sums and only the balance repaid.

How to apply for a refund

12. Training providers who engaged trainers under self-employment contracts and accounted for Class 1 NICs under the Social Security (Categorisation of Earners) Regulations 1978 and who think that they fall into any of the categories identified above should contact HMRC in writing. When writing they should provide the information detailed below. This will help us to check that their particular circumstances meet the statutory qualifying rules governing the refunding of Class 1 NICs.

Please write to:

The Employment Status Team

HM Revenue & Customs

PT (Product & Process)

Area 1E 09

100 Parliament Street.

London

SW1A 2HQ

Please provide the following information:

• training provider's name
• whether a company, partnership or sole trader
• address
• PAYE reference
• Accounts Office reference
• precise nature of business
• the years for which a refund is claimed
• the amount of refund being claimed
• the name, NI number and address of the actual training provider's trainers in respect of whom a refund is being sought
• full details of any written request made by the provider or the trainer to an officer of HMRC (including the date of the request) asking for a decision, or a variation of a previous decision, as to the category of earner under which any of the training providers workers should be included – this should be accompanied by a copy of any decision received from HMRC

Financial Redress

HMRC can make Financial Redress payments under its complaints policy. Our guiding principle when making such payments is to ensure that the customer is not out of pocket as a direct result of our mistake. In the majority of cases, this will mean reimbursing the additional costs incurred as a direct result of our mistake, to the extent that they are reasonable. Common examples include the cost of telephone calls, postage, and any additional professional fees incurred, again to the extent that they are reasonable and proportionate. We will also consider payments for demonstrable financial loss, but not for any loss which is hypothetical, speculative or insubstantial, or the value of any refundable Class1 NICs paid in error.

Source: HMRC www.hmrc.gov.uk Copyright Acknowledged