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Chapter NIM02550

Document Cited authorities 1 Cited in Related
Vincent
Published date11 April 2016
Record NumberNIM02550
CourtHM Revenue & Customs
Written contracts

Where there is a written contract there is usually no difficulty in determining what the terms of the contract of employment are. They are those terms which are set out in the contract documents.

It is also worth remembering that the Employment Rights Act 1996 requires the employer to provide the employee with written particulars of the terms of their employment. These written particulars can be used as evidence of the terms of the employment.

Expectation or custom

However, even if there is no contractual entitlement to a payment there may be a liability for NICs if it is customary to make such a payment. This can be the case in respect of PILONs where there is no written provision for such a payment to be made but the employer always makes such a payment instead of giving the necessary notice. This can be described as a ‘custom’ or ‘expectation’ but it does not mean that the payment is in any way contractual. The payment is one made “automatically” without any consideration of individual employees’ circumstances.

You should not be misled by the terminology but should rather look to determine the nature of the payment. As long as it is a consistent pattern in the workplace that a PILON will always be made in place of the due period of notice, and the process is automatic, then the payment will effectively form part of the employment relationship which underlies the services which the employee provides. It will therefore be earnings for the purposes of NICs (see NIM02010 for information regarding the meaning of “earnings”). This may be the case even if the individual employee claims to be unaware of the condition. The important point to establish is not whether an individual knows about the practice but whether it is an expected part of the employment relationship where the individual works.

Remember also that an expectation or custom can be industry-wide or confined to a small group within a business.

Another important point to bear in mind is that the length of time the custom or expectation has been in place is not a crucial factor. It is...

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