Arens
| Jurisdiction | UK Non-devolved |
| Judgment Date | 10 January 2017 |
| Neutral Citation | [2017] UKFTT 79 (TC) |
| Date | 10 January 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 079 (TC)
Judge Ashley Greenbank, Mrs Susan Lousada
The appellant appeared in person
Ms Sandi Connolly, officer of HM Revenue and Customs, appeared for the respondents
National Insurance contributions – Class 2 contributions – Whether failure to pay contributions was due to ignorance or error – Whether ignorance or error was due to failure to exercise reasonable care – Appeal allowed – Social Security (Crediting and Treatment of Contributions, and National Insurance Numbers) Regulations 2001 (SI 2001/796), reg. 6.
The First-tier Tribunal (FTT) accepted that the ignorance or error which led to the appellant's failure to pay Class 2 National Insurance contributions (NICs) was not due to his failure to exercise reasonable care and therefore the appellant could make further NICs to enable him to qualify for a full state pension.
The appellant (Mr Arens) was employed from 1965–66 to 1973–74. During 1973–74 Mr Arens became self-employed and continued in self-employment until he retired in 2014–15, apart from a period of unemployment from 1989–90 to 1994–95. When Mr Arens became self-employed he registered with the Inland Revenue for income tax purposes and also engaged accountants to handle all his tax affairs who he retained until he retired. During the time Mr Arens was self-employed he paid all relevant income tax liabilities and paid Class 4 NICs, but did not pay Class 2 NICs (although he was given credits for the period he was unemployed). At the time when Mr Arens became self-employed there was no obligation for self-employed earners to register with the Department of Health and Social Security (although he should have later), but he should have obtained and stamped a contribution card to show payment of Class 2 NICs and surrendered the card at the end of the contribution year. Mr Aren's said that he was not aware of this obligation and nor was he aware of receiving any notification that there was a shortfall in his contributions, which HMRC said had been sent on several occasions. Mr Arens only became aware of the deficiency in this NIC record when he contacted the Pension Service shortly before his 65th birthday and was told that he would only get 43% of the basic state pension. He managed to increase this to 63% by paying contributions for the six years from 2008–09 to 2013–14 in accordance with the Social Security (Crediting and Treatment of Contributions, and National Insurance Numbers) Regulations 2001 (SI 2001/796), reg. 4. But HMRC would not allow him to pay contributions for the remaining periods of self employment on the basis that although they were satisfied that Mr Arens's failure to pay contributions was attributable to his ignorance or error, it was not satisfied that that ignorance or error was not the result of his failure to exercise due care and diligence (as required by SI 2001/796, reg. 6 to enable late paid contributions to count towards contributory benefits). Mr Arens appealed against HMRC's decision not to allow him to pay Class 2 NICs from 1973–74 to 1989–90 and 1994–95 to 2007–08.
It was accepted by both parties that Mr Aren's failure to pay the Class 2 NICs was due to his “ignorance or error” for the purposes of SI 2001/796, reg. 6(1)(b), therefore the question for the tribunal was whether that ignorance or error was or was not due to a failure on the part of Mr Aren's “to exercise due care and diligence”.
The FTT noted the following main principles based on case law:
- It is the duty of the contributor to maintain his NIC record (Walsh v Secretary of State for Social Security (1994) (unreported) at p. 4F).
- There is no duty on the authorities to chase up the contributor to ensure that he continues to make contributions (Walsh p. 4F and R & C Commrs v Kearney [2010] BTC 887 at [24]).
- The onus is on the contributor to show that the ignorance or error was not due to any failure on his part to exercise due care and diligence (Kearney at [25]).
- What amounts to a lack of due care and diligence will depend upon all of the circumstances of the case (Walsh p. 11A–B). It is the duty of the tribunal to consider and balance all the relevant factors (Kearney at [34]).
The FTT also noted that case law suggested that a lack of care means a lack of concern, whereas a lack of diligence means a failure to apply oneself to the issue, so diligence requires some form of positive action on the part of the contributor. This may involve some duty to enquire of his obligations, although it may not be necessary for those enquiries to be made of HMRC.
The FTT found that, on the facts of this case, Mr Arens should be regarded as having exercised due care and diligence. The main factors it took into account when making this decision were that:
- Mr Arens was aware of the existence of the National Insurance scheme and of his obligations to make contributions, but he had been careful to ensure that his tax and National Insurance obligations were dealt with by a professional, and he honestly believed that he was paying his tax and NICs;
- as soon as Mr Aren's became aware of the shortfall in his contribution record took steps to make the contributions required to complete his record;
- the fact that a contributor had not registered or maintained their contribution record could not of itself be conclusive evidence of a lack of care or diligence and Mr Aren had demonstrated the relevant level of diligence by placing his affairs in the hands of an appropriate adviser;
- it accepted that Mr Aren was not aware of having actually received a notice setting out the shortfalls in his contributions;
- it was not possible to say whether or not Mr Arens did in fact receive these notices;
- although the tax returns Mr Aren's completed would have referred to his obligation to make Class 2 NIC there was nothing in the returns that would have caused him to believe he was not fulfilling his duties; and
- there was good reason for the test to be relatively strict but it believed Mr Arens had not set out to game the system.
The FTT accordingly allowed the appeal.
Although this case was decided in favour of the appellant, it is another case demonstrating the importance of considering a person's NICs record well in advance of them reaching state pension age.
[1] The Appellant, Stephen Arens (“Mr Arens”), appealed against a decision of the Respondents (“HMRC”) that Mr Arens's failure to pay Class 2 National Insurance contributions (“NICs”) for various periods in the years 1973/74 to 1989/90 and the years 1994/95 to 2007/08 within the prescribed period was attributable to Mr Arens's ignorance or error and that such ignorance or error was due to Mr Arens's failure to exercise due care and diligence.
[2] As a result of the decision, Mr Arens was unable to make further contributions for the periods between 4 March 1974 and 3 February 1990 and between 28 August 1994 and 11 April 2008 and so was unable to qualify for a full state pension.
[3] Following the hearing, the Tribunal gave a decision in summary form in accordance with rule 35(3)(a) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”) allowing the appeal made by Mr Arens. The summary decision was issued on 26...
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Chilvers
...accountant for her, and later his, expertise because he felt unable to deal with these matters himself. [50] Unlike Mr Arens in Arens [2017] TC 05597, Mr Chilvers was very clear that he certainly did read the tax returns and the letters from the accountant accompanying them and he made ever......