John Alexander Lithgow Mason v Her Majesty's Revenue & Customs, SPC 00712

Spc00712

National Insurance Contributions - Contributions reduced by artificial pay practice - Resultant reduction in SERPS payable to the Appellant - Failure of the Secretary of State to counteract the artificial pay practice - whether the Appellant has a genuine grievance - Interim Decision

BEFORE THE SPECIAL COMMISSONERS Reference no: SC/3140/2008

JOHN ALEXANDER LITHGOW MASON

Appellant

-and-

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS

Respondents

Special Commissioner: HOWARD M. NOWLAN

Sitting in public in Edinburgh on 24 September 2008

The Appellant in person

Ms. R. Shields, HM Inspector of Taxes,on behalf of the Respondents

©CROWN COPYRIGHT 2008

INTERIM DECISION

Introduction

1. This was an appeal by John Mason where he disputed the accuracy of the Notice of Decision, issued by HMRC which indicated the National Insurance Contributions ("NICs") made in respect of his past employment, and indicated (at the same figure of £12,156.69) the amount of contributions due. John Mason claimed that more contributions had been due in respect of his employment, so that he should now, as a person in receipt of basic and state earnings related pension ("SERPS"), be receiving considerably more in his SERPS pension than he was in fact receiving. This is because there is a direct relationship between past Primary Class 1 (i.e. employee) NICs and a past earner’s later SERPS pension.

2. The low payment of NICs resulted from a distinctly artificial pay practice which I will describe below. This pay practice had apparently been either common or more likely the invariable practice for the payment of all off-shore workers, working on drilling rigs in the North Sea. It pre-dated the employment of John Mason in that sector but applied to him from 1983 to the date of his retirement in 1998. In that period he had numerous different employers and the same practice was followed by all. For the years 1983 to 1986 the practice resulted in low payment of both Class 1 Primary NICs (i.e. employees' contributions) and also Class 1 Secondary NICs (i.e. employer contributions). In 1986 it ceased to reduce Secondary Contributions save for a trivial amount of remaining saving, not because the practice itself was challenged, but for the extraneous reason that the upper limit to employer Secondary Contributions was removed, so that the practice ceased to achieve the bulk of its earlier saving of Secondary Contributions. The practice nevertheless continued, and it continued to achieve a saving in Primary Contributions, as well as a trivial saving in Secondary Contributions.

3. John Mason was never aware that the curious pay practice would result in a reduction in his SERPS pension, and I accepted his evidence that he had been party to a conversation where someone had asked one of his several employers whether the pay arrangement would have this effect and he had been told that it would not. Once he discovered that his SERPS entitlement had been considerably reduced, John Mason pursued a campaign at various levels to try to rectify what he saw as a severe grievance. He entirely accepted that if, without his being aware of the consequences, his SERPS pension had been reduced by some amount merely matching the deductions that he had not suffered by way of the reduction in his employee contributions, we would have suffered only a minor grievance since then he would have paid less to receive less. He would doubtless still have been very critical of his past employers who he considered deliberately instituted the artificial pay practice to reduce NICs, and he would also have been critical of the Secretary of State for not having undermined the artificial practice. That aside, however, his principal grievance now consisted in the fact that whilst the full amount of his SERPS pension would have reflected effectively a return of both his Primary employee contributions and the Secondary contributions paid by his various employers in respect of his employment, the actual calculation undertaken to reduce his SERPS pension paid regard only to his Primary contributions, and reduced the pension by an excessive amount having regard to the fact that Secondary contributions had been received in full in respect of his various employments since 1986. In other words because the SERPS calculation paid regard only to the low Primary contributions that he had suffered by deduction from his salary, the Exchequer was actually making a considerable saving out of his misfortune, because it had received the Secondary contributions since 1986.

4. John Mason has been campaigning at various levels to try to obtain some redress. Before me he argued that because his employee Primary NIC deductions should have been higher, it was plainly for the authorities to collect the right amount of NICs and he should be entitled to the pension that would have been payable had the authorities collected the right amount of Primary NICs. He argued this both on technical grounds, along the lines that within the strict letter of the law and Regulations, higher NICs were strictly due and could now be collected, and he also argued that under three Regulations the Secretary of State (more recently the Board of HMRC) had been given powers to counteract the artificial pay practices, and had woefully failed to do so. He also argued much more generally (largely in letters to his Member of the Scottish Parliament, and to the National Audit Office and other public bodies) that he had a grievance that should be remedied.

5. I have jurisdiction of course only in relation to the strict legal question of whether the calculation of Primary Contributions was correct or incorrect. At the hearing it seemed to me that the calculation had been correct, save for one conceivable argument that the Appellant had advanced, albeit that at the hearing he had no evidence to support or sustain the argument. Since I had intimated at the hearing that further evidence on this point was the only factor that might enable me to allow the appeal, the Appellant sent certain further information to me and to the Respondents after the hearing. I have to date found it impossible to understand the further evidence, and impossible to see that it actually demonstrates that the Appellant should succeed in this appeal. Since there was a considerable amount of confusion at the hearing, I have decided that the most practical way in which to proceed is to give this interim decision in which:

• I will indicate that, further evidence in relation to the point to which I have just referred apart, I must dismiss the appeal, since I will then have to conclude that the correct amount of Primary Contributions was in fact deducted and paid in respect of the Appellant's earnings;

• I will have to declare that I have no jurisdiction over various of the points advanced by the Appellant, where he argued that the Secretary of State had been remiss in not acting to counteract the artificial pay practice that diminished the Appellant's Primary contributions, albeit that I agree with the Appellant that this omission to act was extraordinary; and

• I will simultaneously confirm that, having heard all the facts and arguments, it does very much appear to me, and I believe also to the representatives of HMRC, that the Appellant has a genuine and significant grievance, albeit one for which I can give no remedy. I would nevertheless also like to express the hope that somebody is able to remedy the grievance.

I will similarly issue Directions with this Interim Decision, indicating the further information and evidence that I would like to receive from both the Appellant and the Respondents, and the manner in which I hope to be able to arrive at a final decision as to whether further evidence does enable me to allow this appeal.

The facts as regards the Appellant's various employments, and the circumstances that led to the deduction and payment of significantly reduced Primary NICs

6. The Appellant was employed as a senior electrician to work on various North Sea drilling rigs. He was employed by numerous different employers over the period from 1983 to 1998, and he was always engaged on the basis that in each month, he would work 12-hour shifts on the rigs for 14 days, and then he would have 14 days spent on the mainland without further duties for his employer. On the assumption that a second employee was working for the 12 hours when the Appellant was on the rig, but off duty, and on the assumption that two replacement employees worked the shifts whilst the Appellant was on the mainland, the rig operators were obviously able to operate the rig at all times.

7 The Appellant's pay was always paid in a curious manner. Instead of his being paid monthly, he was paid all...