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News Items – at 13th March 2008
In February 2007, the Equal Opportunities Commission (EOC) sought a judicial review in the High Court of the Government’s implementation, in the Sex Discrimination Act 1975, of the 2002 changes to the European Directive on “equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions”. Six issues were raised by the EOC and, in the judgement handed down on 12 March 2007, the High Court ruled that the 2005 changes did not clearly reflect the amended Directive in the areas at issue and should be amended by the Government.
Among the issues raised by the EOC were two points related to the entitlement of women to contractual pay and benefits during ordinary maternity leave (the first 26 weeks of absence) and additional maternity leave (the second 26 weeks of absence). The entitlements relevant to the issues are:
- During ordinary maternity leave, a woman is entitled to the benefit of all of the terms and conditions of employment that would have applied if she had not been absent, other than her remuneration which is defined specifically as “sums payable to an employee by way of wages or salary”.
- During additional maternity leave, a woman is entitled to the benefit of any terms and conditions of her employment relating to
- notice of the termination of the employment contract by her employer,
- compensation in the event of redundancy, or
- disciplinary or grievance procedures.
The EOC raised two points about these entitlements because the European Directive does not allow a woman to suffer discrimination in employment because she is on maternity leave, other than in certain permitted situations. The High Court agreed with the EOC’s argument that these provisions are discriminatory and, as a result, the Government is obliged to change the relevant legislation, including the Maternity and Parental Leave etc Regulations 1999. The changes will include
- clarification of the meaning of “remuneration”, and
- the removal of the distinction between entitlement to non-pay benefits during
- ordinary maternity leave and during additional maternity leave.
The necessary changes to the Sex Discrimination Act 1975 will be made by Regulations that are intended to come into effect on 6 April 2008. However, in order to provide time for employers to prepare for the changes, those relating to terms and conditions during maternity leave will apply to employees whose expected week of childbirth begins on or after 5 October 2008. The changes will involved amendments to the Maternity and Parental Leave etc Regulations 1999.
Further information:
Outcome of Judicial Review on Employment Equality (Sex Discrimination) Regulations 2005 http://www.equalities.gov.uk/legislation/index.htm
Change of implementation date for the changes being made to the law on contractual terms of employment during Additional Maternity Leave http://www.hmrc.gov.uk/employers/changes-add-mat-leave.htm
In a decision given on 22 February 2008, the President of the Employment Appeal Tribunal (EAT), sitting alone, provided some useful guidance on the application of the protection of wages rules in the Employment Rights Act 1996 (ERA).
Section 13 of the Act provides workers with the right not to suffer unauthorised deductions from their wages. Section 14 gives a number of situations where deductions can be made by an employer without prior authorisation. In principle, for a deduction to be lawful, it must be authorised in advance, i.e. by means of a statutory provision, or a term in the worker’s contract, or in a document signed by the employee in advance. There are a number of exemptions from this rule; the relevant provision in this case is where the deduction is made by the employer to recover an overpayment of wages.
In this particular case, Key Recruitment v Lear, Mr. Lear received a commission payment of £1,831 in June 2006 for introducing a new client. When Mr. Lear left the employment in April 2007, the employer deducted the full amount of the commission from the termination payments, on the basis that the client had subsequently defaulted on payments due to the employer. An employment tribunal agreed with Mr. Lear’s claim that the deduction was unlawful because the employer could have recovered the commission payment earlier and the amount deducted meant that he received no monies on termination. The employer appealed the decision, arguing that the tribunal had wrongly applied the provisions of sections 13 and 14 of the ERA.
The EAT agreed that the tribunal had erred in its decision and remitted the case to be heard by a fresh tribunal. The two issues discussed in the EAT’s decision are helpful in understanding the application of these provisions.
- There is no limitation in the legislation to the amount that may be recovered or to the period of time within which any recovery of overpayment must be made.
- A commission payment, if paid at the time in accord with contractual provisions, does not become an overpayment unless there is also a contractual provision allowing it to be recovered in defined circumstances and, in fact, those circumstances have arisen.
With respect to the second of these points, it appeared in this case that a commission payment could only be recovered by the employer if and when the client’s debt was written off. That did not, in fact, occur until some months after Mr. Lear left the employment.
Further information:
Key Recruitment v Lear http://www.bailii.org/uk/cases/UKEAT/2008/0597_07_2202.html
In a decision given on 26 February 2008, the European Court of Justice (ECJ) ruled on whether a woman undergoing fertilisation treatment (involving in vitro fertilisation of her ova outside of her body) is entitled to the employment and health and safety protections provided by the European Directive for women who are pregnant, or who have recently given birth, or who are breastfeeding.
The case, Sabine Mayr v Bäckerei und Konditorei Gerhard Flöckner OHG, involved an Austrian woman who was dismissed by her employer while she was receiving fertility treatment. The ECJ ruled that the protections provided by the Directive and the national laws implementing the Directive do not apply to a woman who is undergoing in vitro fertilisation treatment where her ova have already been fertilised by her partner’s sperm cells, so that in vitro fertilised ova exist but have not yet been transferred into her uterus.
Further information:
Sabine Mayr v Bäckerei und Konditorei Gerhard Flöckner OHG http://www.bailii.org/eu/cases/EUECJ/2008/C50606.html
Press Release http://curia.europa.eu/en/actu/communiques/cp08/aff/cp080010en.pdf
Section 336 of the Income Tax (Earnings and Pensions) Act 2003 (formerly section 198 of the Income and Corporation Taxes Act 1988) allows employees to claim a “deduction from earnings” (i.e. claim tax relief) on expenses that they have incurred “wholly, exclusively and necessarily in the performance of the duties of the employment”.
The use of this provision has been clarified in a decision by the Special Commissioner in the case Emms v Revenue & Customs, given on 14 February 2008. Mr. Emms claimed tax relief on his purchases of various foods, nutritional supplements and medicines that were required to maintain the level of physical fitness demanded for his employment as a professional rugby union prop forward. HMRC denied the tax relief on the basis that the expenditure did not qualify as a deduction from earnings because it was not incurred exclusively and necessarily in the performance of his employment duties.
The Commissioner agreed with HMRC’s interpretation of the legislation, based on a number of well established precedents. Although Mr. Emms could not maintain his level of fitness without the foods and supplements that he had purchased, the expense was incurred to enable him to perform his duties, but not “in the performance of the duties”. In addition he benefitted outside of his job from the good health that his diet provided.
The Commissioner conceded that this statutory provision is “notoriously rigid, narrow and to some extent unfair in its operations”. It was necessary, however, to prevent employees from incurring expenses in their own time, entirely of their own choice, in order to improve their usefulness to their employer.
The Commissioner included in his decision an explanation of what is required to meet the four requirements of section 336.
Further information:
Emms v Revenue & Customs http://www.bailii.org/uk/cases/UKSC/2008/SPC00668.html
Employment Income Manual: Deductions from General Earnings http://www.hmrc.gov.uk/manuals/eimanual/eim31600.htm
The Low Pay Commission published its 2008 Report in March 2008, making recommendations for increases in rates by 3.8% from October 2008. The proposals are as follows:
National Minimum Wage Rates
- the adult rate should be increased from £5.52 to £5.73 an hour
- the Youth Development Rate should increase from £4.60 to £4.77 an hourhe 16-17 year-old rate should increase from £3.40 to £3.53 an hour.
Accommodation Offset
- the value of the accommodation offset should rise from £4.30 per day to £4.46 per day (equivalent to £31.22 for a 7-day period).
21 Year Olds
- 21 year olds should be entitled to the adult rate.
Other recommendations include:
- a review by the Government of the existing guidance on employees sleeping at their place of work
- the production of updated guidance concerning work experience placements
- an evaluation of the fair piece rates arrangement, where home workers are paid on a per item basis.
In a separate press release, the Government accepted the recommendations with the specific exception of the recommendation that the adult rate should apply from age 21. Every year the Low Pay Commission makes this recommendation and every year the Government rejects it. This year, the Commission states that it has “again weighed the evidence and concluded unanimously that lowering the entitlement to the adult rate to the age of 21 would not have a detrimental impact on their employment prospects” and notes that most employers already pay 21 year olds at least the adult rate. To apply pressure on the Government, the Commission specifically asks for an explanation of the exact nature of its opposition and a specification of what would need to change for the Government to adopt a positive approach to this recommendation. In this respect, it is perhaps noteworthy that, in its press release, the Government takes credit for having introduced the national minimum wage but does not express any appreciation for the work of the Commission in preparing its recommendations.
The Government has also acknowledged, without any commitment, the Commission’s request that steps are taken to reverse cuts to the sample Annual Survey of Hours and Earnings and prevent further erosion of the data provided by the Office of National Statistics.
The Low Pay Commission's remit for 2008/09 has also been set. It is asked to:
- monitor, evaluate and review the NMW and its impact
- review the levels of each of the different minimum wage rates and make recommendations for October 2009 and provisional rate recommendations for October 2010
- review the current apprentice exemptions, bearing in mind the Government's target to increase apprenticeships
- report to the Prime Minister and Secretary of State for Business, Enterprise and Regulatory Reform by the end of February 2009.
Further information:
Low Pay Commission Report 2008
http://www.lowpay.gov.uk/lowpay/report/pdf/2008_min_wage.pdf
Low Pay Commission Press Release http://www.lowpay.gov.uk/lowpay/press/LPC_Press_Notice_2008_%20Report.doc
Government approves new £5.73 Minimum Wage Rate http://www.gnn.gov.uk/Content/Detail.asp?ReleaseID=357883&NewsAreaID=2
Form P38(S) and its related procedures are intended to allow students to be employed during their holiday periods if they do not expect their earnings to exceed the personal allowance for the year.
Student work patterns have changed significantly over the last twenty years. In 1984, 18% of 18 to 24 year olds in full time or part time education were working at a given point in the year. By 2006, this had increased to over 42%. Around 67% of students in full time education were in employment for at least one period during 2005.
Starting 3 March, HMRC launched a Student Tax Advice Campaign, aimed at ensuring that students understand their responsibilities for tax and national insurance. Findings of the Student Tax Advice research include:
- a total of 76% of students are in paid employment: 58% of students work part-time, while 39% do 'odd jobs' now and again
- more male (66%) than female students work part-time (55%)
- the retail sector is the biggest employer for UK students, at 32%; followed by office work (26%), and bar work, (18%).
- students are aware of the importance of knowing their National Insurance Number, with 93% claiming to know their number, or to have it safely to hand.
At the same time, HMRC published a new consultation document, entitled Modernising PAYE Processes for Students. It addresses concerns that, as a result of changing student work patterns, the P38(S) procedures may no longer address the needs of most working students. In particular,
- although many students now work during term time as well as the holidays and, as a result, the P38(S) cannot be used, only about 20% of students earn enough in the tax year to pay tax
- many students have low incomes, may have several different jobs during a tax year and have gaps in their employment
- many employers do not use the P38(S) procedures because they are administratively burdensome, preferring instead to apply normal PAYE procedures through their computerised payroll systems.
As a result of these trends, a growing number of students are over-paying tax on their employment income and having to claim repayments during the tax year or at the year-end, requiring additional HMRC resources.
The consultation document puts forward three options for discussion, all of which involve scrapping the P38(S). None of the proposals involve changes to the calculation of NICs. For the second and third, the procedure would only be available to a “student”, defined simply as a person who
- is age 16 or over
- is attending or studying with a school, college or university full-time
- has an NI number or has evidence of applying for one, and
- does not expect to earn more than the personal allowance in the tax year.
This is a broader definition than that used for the P38(S) procedures as it would apply to students in their first or last years at college or university, and would also apply to sixth-form students. There is also no distinction drawn between work performed in term-time and during holiday periods.
The first option is to treat all students as other employees and apply the normal PAYE procedures. If the student has two or more different jobs during the tax year, there may be little tax deducted in the first job, where P46 procedures indicate that the emergency tax code on a cumulative basis may be used. In subsequent jobs, however, tax may be deducted on a non-cumulative basis or, if two jobs are held at the same time, at the basic rate, likely resulting in an over-deduction of tax for the year. The employers would have to file P14s for each employment and the student would have to reclaim the overpaid tax or wait for HMRC to repay it once the in-year and end-of-year details have been merged.
The second option is a new student tax code that would be applied by the student’s employer if the student meets the student definition (see above). A code of ED (short for “Education”) is suggested in the consultation document and its use would enable a student to earn the personal allowance in a tax year before tax starts to be deducted. The option to apply this code if the student conditions are met would be added to form P46. The conditions would also be added to form P45, so that the student code used by the previous employer could continue to be used by the new employer. It would be used across all employments held by the student during the year, as long as the student is able to re-confirm eligibility at the start of each employment and the aggregated income from all employments is not expected to exceed the personal allowance. If the conditions cannot be met in any employment, the student will be taxed under normal PAYE rules. A full payroll record would be maintained by each employer and a P14 filed at the year end for each employment. It is expected that 80% of all students would not pay any tax under this arrangement.
The consultation document is not particularly clear on how this ED code would work. It suggests that new tax tables would be required so tax would be deducted automatically by the payroll when earnings exceed the personal allowance, likely using tax code BR on a non-cumulative basis. But, if students regularly change jobs and do not pass on a P45 to the new employer, the personal allowance may not be exceeded in any particular job but may be exceeded over a number of jobs without any tax having been deducted. The examples in the consultation document do not address this situation.
The third option, as described in the consultation document, is difficult to distinguish from the second option. It involves a new student tax code, ET is suggested (short for “Education Tax” code), which would operate in the same way as the existing NT code but would require a P45 to be issued on termination. The student would have to confirm at the start of any new employment that the student conditions are met and it seems that, although a P45 would be issued, this would not be applied by the new employer unless entitlement is first re-confirmed. A P14 would be filed by each employer at the year end.
The key difference between options two and three appears to be that tax would start to be deducted automatically under option two when the personal allowance is exceeded, but that would not happen under option three. If, under option three, a student’s earnings exceed the personal allowance, the underpaid tax would be collected by means of an adjustment to a normal tax code in a later year when the student conditions are no longer met. Both of these options are open to abuse or could operate so that the student owes tax at the year end. HMRC would introduce compliance checks to ensure their correct use.
Options two and three would also require HMRC to be informed when an employee ceases to meet the student conditions. A new tax code, taking into account any unused personal allowance, would be issued so that normal PAYE procedures can be applied. This situation and the operation of the option two tax code when the personal allowance is exceeded would result in the student’s earnings being reduced considerably by the resulting tax deduction.
Employers are invited to send their comments on the following questions, quoted directly from the consultation document, to HMRC:
- Which is your preferred option and why?
- What other benefits do you think it would bring?
- Will there be any impact because of having to [maintain a payroll record] and [complete] P14s for all students you employ or do you already do this anyway?
- Do you see any downsides to your preferred option or situations where it might not work as effectively?
- Do you have a view on whether the criteria listed accurately reflect the definition of a student and are a workable definition for employers to use?
- Options two and three would require the inclusion of the student definition on a new P45 and P46 – what are your views on this?
- Option two envisages that students would be able to use the Student Tax code across all employments in a tax year – what are your views on this?
- Option three envisages creating a new tax code which works in a similar, but not identical way to the current NT code. For example, currently employers are not required to issue P45s where a code NT is in use, but the new student code would require employers to issue P45s. What are your views on this?
- In the case of option two, in circumstances where the pay in one particular employment exceeds the Personal Allowance for the year, it is proposed that the employer puts the student on to emergency code non cumulative. [The consultation document actually proposes BR non-cumulative] Do you have any views on this?
- Where aggregated pay exceeds the Personal Allowance during the year, but not in any one job, HMRC will not become aware of this until after the year end reconciliation. HMRC will then adjust the student’s tax code in the following year to collect this underpaid tax. There is currently no formal assessing machinery for PAYE cases outside the Self Assessment process, so this would mean that these students would go onto standard PAYE to allow the underpayment to be coded out. Do you have any views on this?
- If a student drops out of education part way through a tax year and has previously worked in the tax year, they will be put on to the emergency code non cumulative week 1 basis [P46 procedure] in their next employment until HMRC can confirm the correct code to be used. If however they stay in the same job they ought to inform HMRC of this change in circumstance and HMRC should send the employer a new code. Do you have any views about this?
- When a student completes their education it will not usually tie in with the end of the tax year, so we think the same logic should follow as in 11 above – i.e. to be put on the emergency code non cumulative week 1 basis in their employment until HMRC can confirm the correct code to be used. Do you have any views on this?
- In order to reduce the compliance risk some thought has been given to the idea of time limiting these tax codes for individuals. This could be say three, five or seven years. Do you have any views on how this might work?
- Do you have any data or comments on the impact that complying with a change to the current P38(S) process may have? We are specifically interested in the time or cost for both business and individuals.
- Do you foresee any particular issues around implementation and transition?
- What sort of support and guidance might be required from HMRC?
The deadline for submissions is 16 May 2008 and details of how responses should be sent are given in the consultation document. It is anticipated that any changes resulting from this consultation could not be implemented until April 2010 at the earliest.
Further information:
HMRC launches campaign to help students learn about tax https://www.gnn.gov.uk/environment/fullDetail.asp?ReleaseID=357190&NewsAreaID=2
Student Tax Advice http://stevef.myzen.co.uk/
Modernising PAYE Processes for Students http://customs.hmrc.gov.uk/channelsPortalWebApp/
downloadFile?contentID=HMCE_PROD1_028381
In one of the January 2008 newsletters, we explained that, when making monthly or quarterly payments of tax and NICs to the Accounts Office, there was no longer a requirement to split the payment into separate amounts of tax and NICs. The 2008/09 payslips that have to accompany cheque payments ask only for the gross payment, not for the split values. The payment due may also include amounts in respect of tax collected under the Construction Industry scheme and student loan deductions.
This procedural change requires adjustments to be made to Schedule 4 of the Social Security (Contributions) Regulation 2001. These have been made by means of Amendment Regulations that come into force from April 2008.
Paragraph 15 and 17 of Schedule 4 allows HMRC to assess an employer for unpaid NICs if the employer fails to pay over NICs by the monthly or quarterly payment deadline. The amount assessed has, until now, been based on the amounts of Class 1 NICs that have been paid for previous periods. As, from April 2008, the employer is no longer required to show the amount of NICs being paid separately, it will not be possible for HMRC to identify the amount of NICs that may have been due for a particular period until the P35 is filed at the tax year end. Accordingly, in assessing an employer for amounts of tax and Class 1 NICs (and Construction Industry tax and student loan deductions) that were not paid for a particular period, HMRC will no longer have to identify the specific amount of NICs that it believes was due, only to specify the combined total amount of tax and NICs.
Nevertheless, HMRC retains the power to make an assessment for one or more specific component, for example, where it is believed that an employer has not paid over Construction Industry tax but has paid over all of the other components.
Paragraph 17 of Schedule 4 makes similar provision with regard to interest that falls due on amounts of Class 1 NICs that are unpaid for the whole tax year at 19/22 April, or Class 1B NICs that are unpaid at 19/22 October. The amount of interest assessed does not, from 2008/09, have to identify the specific component to which the interest calculation relates.
Changes for a different purpose are also made to paragraphs 22 and 31 of Schedule 4. From 1 April 2008, the new penalty regime set out in Schedule 24 of the Finance Act 2007 comes into force in respect of incorrect documents and assessments relating to income tax, PAYE, corporation tax and VAT. The Amendment Regulations now extend the same penalty regime to documents relating to NICs. However, under the transitional arrangements, no penalties under the new regime will be imposed in respect of any tax period for which a return is required to be made before 1st April 2009.
By means of separate Regulations, the new penalty regime is extended to the recovery of student loan deductions in respect of returns made by the borrower and assessments of amounts owing. However, no changes are made to the penalty that may be imposed if an employer makes incorrect deductions from the borrowers earnings or makes incorrect payments to the Accounts Office, namely a penalty of up to £3,000.
Further information:
The Social Security (Contributions) (Amendment No. 3) Regulations 2008 http://www.hmrc.gov.uk/si/2008-0636.pdf
Explanatory Memorandum to the Social Security (Contributions) (Amendment No. 3) Regulations 2008 http://www.hmrc.gov.uk/si/2008-0636-em.pdf
The Finance Act 2007, Schedule 24 (Commencement and Transitional Provisions) Order 2008 http://www.opsi.gov.uk/si/si2008/pdf/uksi_20080568_en.pdf
The Education (Student Loans) (Repayment) (Amendment) Regulations 2008 http://www.opsi.gov.uk/si/si2008/pdf/uksi_20080546_en.pdf
HMRC has published new guidance in its Employment Income Manual on the payment of accommodation and subsistence expenses by means of benchmark scale rates. The guidance covers two areas:
- the sampling procedures that employers must follow in order to demonstrate to HMRC the validity of any scale rates for which they wish to obtain a dispensation
- the use of a new set of benchmark scale rates covering accommodation and subsistence expenses for business travel in most countries of the world.
Further information:
Scale rate expenses payments: general http://www.hmrc.gov.uk/manuals/eimanual/EIM05200.htm
http://www.hmrc.gov.uk/manuals/eimanual/EIM05250.htmAccommodation and subsistence payments to employees travelling outside the UK tables of benchmark rates http://www.hmrc.gov.uk/manuals/eimanual/EIM05250.htm
Year-end Filing: HMRC’s own online year-end filing facilities are already available for use for 2007/08 Returns. However, they will not be available between 6 am on 4 April and 6 am 6 April, during which period HMRC will be updating its PAYE Service for changes to legislation.
However, the peri
od of restriction is expected to be only between 12 noon and 8 pm on 5 April for employers using third-party software to file their returns. It will still be possible to send Returns during that period but there will be no response until the end of the 8-hour period.
In-Year Filing: It will not be possible to send forms P45, P46 and pension notifications over the Internet using third party software or HMRC’s own filing facilities between 2 April and 8 April. If any forms are sent during that period, a “1046 Authentication Failure” message will be sent, meaning only that the service is closed. If it not possible to wait until 9 April to send forms, paper forms may be ordered and used instead. Full processing capability for in-year forms is expected to be in place by 14 April.
Further information:
Getting ready to send your 2008 employer Return online http://www.hmrc.gov.uk/payeonline/news-7march.htm
Sending PAYE forms P45 and P46 online in April 2008 http://www.hmrc.gov.uk/inyear/index.htm#downtime
Income tax paid by an employee on a subsidised loan provided by their employer is based on the difference between the interest rate actually charged and HMRC’s “official rate” of interest. The official rate has been set at 6.25% for 2007/08 and HMRC has confirmed that this will be frozen for the 2008/09 tax year, subject to review in the event of significant rate changes.
Further information:
Beneficial loan arrangements - official rates http://www.hmrc.gov.uk/rates/interest-beneficial.htm
On 20 February, HMRC announced that some P6 coding notices that had been sent online since the start of February had included a misleading instruction about operating the code. The final sentence stated: “Please use this tax code from the next pay day for the year to 5 April 2007”. However, it should have said “Please use this tax code from the next pay day following the effective date shown above”.
Further information:
Online P6 Tax Code Notice http://www.hmrc.gov.uk/news/february.htm
The Border and Immigration Agency (BIA) has published its promised “comprehensive guidance” document on the new rules that employers must follow when recruiting from 29 February 2008. In order to provide themselves with a "statutory excuse" and thereby avoiding the possibility of a penalty or even imprisonment for employing an illegal immigrant, employers must carry out document checks prior to the start of employment. The 80-page document includes specimens of all of the different types of documents that employers might need to examine.
Further information:
Comprehensive Guidance for Employers on Preventing Illegal Working http://www.bia.homeoffice.gov.uk/sitecontent/documents/employersandsponsors/
preventingillegalworking/currentguidanceandcodes/
comprehensiveguidancefeb08.pdf?view=Binary
Payroll deadlines during the next month
March 19 – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.
March 20 – (March 22 is a Saturday and March 21 is a Bank Holiday) – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account. Payments through BACS must be initiated by March 18 at the latest.
April 5 – This is the final day of tax month 12 and of the tax year. Tax and NICs etc. for payments made in the tax month to April 5, and any outstanding tax and NICs etc. for the tax year, are due for payment to the Accounts Office by April 19, or by April 22 if paid electronically.
Payroll FAQ's
National Insurance numbers are allocated by the Department for Work and Pensions (DWP) and, in the context of payroll, are the reference number by which HMRC identifies each individual’s National Insurance contribution record.
A National Insurance (NI) number (often referred to as a ‘NINO’) is allocated to a child when a Child Benefit record is created for that child. At that time, the number is known as a Child Reference Number (CRN). Before the child reaches school-leaving age, the CRN becomes an NI number and is issued to the child on an NI number card.
An NI number has three parts, a two-character prefix (e.g. AB), a six-digit number, (e.g. 123456) and a single-character suffix (e.g. C), making up the full number AB123456C. None of the three parts has any personal relevance to the individual to whom it is allocated. The prefix, however, can be used to determine the year in which the NI number was created and some prefixes are specific to certain areas of the UK, such as JY for Jersey, MN for Isle of Man and BT for Northern Ireland.
The prefix is a combination of most letters of the alphabet. The letters D, F, I, Q, U and V are not used at all in order to avoid confusion with other letters if badly written. The letter O is not used as the second letter of the prefix to avoid confusing it with zero. The prefix is the only part of the NI number that can be validated when the number for a new employee is recorded in a computerised payroll system or when HMRC receives P14 End of Year Summaries. The only prefixes that may be used are those that have already been allocated. Payroll system developers are informed of the prefixes that have been allocated or that are currently being allocated.
Some prefix combinations have been used at times for temporary purposes. Prefixes such as ‘00’ (used for tax credit purposes), ‘NC’ (used for stakeholder pension purposes), and ‘TN’ (historically used by employers when a new employee was unable to provide a correct NI number) are not permitted on any returns or forms sent to HMRC.
The central part of the NI number is a number between 000001 and 999999. There are, therefore, almost one million numbers that can be used with each prefix. New NI numbers are allocated consecutively, so AB000001A would be followed by AB000002B, AB000003C, AB000004D, AB000005A, and so on.
The suffix letter, A, B, C or D, has no current relevance at all. In fact, if an NI number is shown on a document sent to HMRC with the suffix missing, it will still pass the validation test.
The suffix letters, however, have an interesting history. Prior to 1975, National Insurance contributions were collected by means of small stamps that were purchased at post offices and affixed to a National Insurance contribution card that the employer kept for each employee. Each card would be full after a year, after which the card had to be sent to the DSS (the forerunner of the current DWP) in exchange for a new card. The suffix letter told the employer when to return each card, in March for suffix ‘A’, June for suffix ‘B’, September for suffix ‘C’, and December for suffix ‘D’. Although contribution cards are no longer used, the suffix is still an integral part of the NI number.
A correspondent recently asked why, if NI numbers are allocated consecutively, her two children, born several years apart, have consecutive numbers, e.g. AB000001A and AB000002B (not the actual numbers). In fact, two of the author’s children, although born seven years apart, have consecutive NI numbers. Another situation that arises at times is that two people who were in the same school class together find that they also have consecutive numbers.
Historically, NI Number prefixes were allocated regionally and the period over which they were issued varied considerably. In October 1988, a national system of prefixes was introduced and, in 1992, as a part of the process, a CRN was allocated in bulk to every child in the Child Benefit system at the time.
Prior to 1992, an NI number was allocated to each child at about the time the child turned 16. The numbers were allocated from school records, so children whose names were next to each other alphabetically in the class register will often have consecutive NI numbers.
In 1992, when a CRN was allocated to every child for whom Child Benefit was in payment, the children in a particular family were, in many cases, allocated consecutive numbers. Therefore, families who were in receipt of Child Benefit for two or more children in 1992 may find that their children have consecutive NI numbers.
A Double Taxation Agreement between Ireland and Vietnam was signed by their respective Finance Ministers on 10 March 2008. If, as expected, the Dáil and the Government of Vietnam ratify the Agreement before the end of 2008, it will enter into force at the beginning of 2009.
Further information:
Signature of Double Taxation Agreement between Ireland and Vietnam http://www.revenue.ie/press/pr_110308vietnam.htm
Agreement Between the Government of Ireland and the Government of the Socialist Republic of Vietnam for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect To Taxes on Income http://www.revenue.ie/services/tax_info/dtas/vietnam.doc
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