Autumn Statement 2016: NIC and removal from Limitation Act

Currently, under the Limitation Act 1980, HMRC can go back six years to recover unpaid National Insurance Contributions (NICs).

From April 2018, the Government will remove NICs from the effects of the Limitation Act 1980 and Northern Ireland equivalent. This will align the time limits and recovery process for enforcing National Insurance debts with other taxes. The Government will consult on the details.

Once aligned with the direct taxes legislation, HMRC will be able to go back up to 20 tax years to recover unpaid NICs.

The reason that National Insurance recovery time limits are dictated by the Limitations Act 1980 is because they are neither taxes nor duties. The alignment of National Insurance rules with those for other taxes paves the way for NICs to effectively become a tax. It would then be easier for the Government to combine National Insurance and income tax to form just the one ‘new’ tax.

Taxpayers who have some employment related arrangements, which HMRC defeat in tribunal, currently only need to pay the related income tax liabilities to settle with HMRC. Following this announcement, HMRC are likely to raise assessments for the NICs as well as the income tax. However, HMRC can only recover debts older than six years where they can show that the taxpayer behaved deliberately.