Chilvers
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 August 2018 |
| Neutral Citation | [2018] UKFTT 517 (TC) |
| Date | 28 August 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0517 (TC)
Judge Anne Scott
Mr Chilvers, appeared the appellant
Mr T Chako, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
National insurance – Class 2 contributions – Failure to pay – Whether failure to pay attributable to ignorance or error – Whether ignorance or error due to failure to exercise due care and diligence – No – Appeal allowed.
The First-tier Tribunal (“FTT”) allowed an appeal against a decision issued by HMRC pursuant to s. 8 of the Social Security Contributions (Transfer of Functions, etc) Act 1999 that a failure to pay Class 2 NICs was attributable to ignorance or error caused by a failure to exercise due care and diligence.
The Appellant (Mr Chilvers) became eligible for a state pension in 2016. In that year, he requested a pension statement from the Department of Work and Pensions and was, to his surprise, notified that he was entitled to a reduced pension based on 13 qualifying years rather than the required 35. Mr Chilvers contacted HMRC and tried to remedy his situation by paying backdated Class 2 NICs. HMRC informed him that a) he was not registered as self-employed but that b) the time limits for making such contributions had expired and c) whilst the liability to pay the NICs remained, any late payments would not count for benefit purposes.
HMRC discovered that when NICs were managed by the DSS or DHSS, they had sent “deficiency notices” to Mr Chilvers in respect of 1985/86 to 1988/89 tax years. The Appellant claimed not to have received the notices because he had moved home in 1985. Mr Chilvers accountants had no record of their work prior to 2001.
The FTT found the Appellant to be “a straightforward and wholly credible witness”. The Appellant had been self-employed in publishing (which has involved writing, editing, proof reading and indexing) since he had been made redundant in 1983 with modest earnings and uncomplicated financial affairs. Despite this fact, Mr Chilvers felt “intimidated” by tax matters and had engaged an accountant to deal with and advise on his tax compliance. The accountants prepared accounts and tax returns and had registered the Appellant as self-employed with the then Inland Revenue. The annual statements prepared by the accountants showed Class 4 NICs only. The Appellant was unaware of the two different types of NICs for the self-employed and was not given advice on Class 2 NICs by his accountants. The issue of Class 2 NICs had only come to light when one of the Appellant's friends (who engaged the same accountants) encountered the same issue two years earlier.
As it was not disputed that the failure to pay NICs had arisen from the Appellant's ignorance of the requirements, the single issued for the FTT to determine was whether the failure was caused by a failure to exercise due care and diligence in respect of NICs.
The FTT accepted that despite the unsurprising absence of any evidence of advice given by accountants 35 years ago, the Appellant had not been told by his accountants to register with the DHSS for Class 2 NICs. Even though the FTT found that Mr Chilvers had not been told about NICs, it had to address the Appellant's failure to ask specifically about NICs. The FTT referred to the issue as “a chicken and egg situation” and accepted that since the Appellant was unaware of Class 2 NICs, it would have been impossible for him to ask about them. The FTT also accepted that in the circumstances, Mr Chilvers had not received the Deficiency Notices sent by the DHSS in 1985. The Appellant had very little knowledge of tax and social security obligations and had engaged an accountant to assist him. In addition, the accountants that he had engaged were recommended and held themselves out to be specialists in the publishing profession. The Appellant did not have to read the notes attached to tax returns because he was paying an accountant to do so. Having employed an accountant, the Appellant was perfectly entitled to think that he was paying all liabilities he was required to pay. The Appellant had acted with due care and diligence and therefore the appeal was allowed.
In this case the taxpayer had sought advice and compliance assistance from a specialist accountant. That accountant registered the taxpayer as self-employed with the then Inland Revenue, but not with the then Department of Social Security. The taxpayer was completely ignorant of the exitance of two different types of NICs and was prejudiced by his accountant's negligence. This is a historic issue as HMRC now deals with NICs and the current self-assessment registration form (CWF1) also registers a person for NICs the same issue should not now arise. This case (like Barrett v R & C Commrs [2015] TC 04514) clarifies that an...
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