McKinnon
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 September 2016 |
| Neutral Citation | [2016] UKFTT 667 (TC) |
| Date | 30 September 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Sarah Falk, Susan Lousada
The appellant appeared in person
Mrs Lesley Crawford, Officer of HM Revenue and Customs, appeared for the respondents
National Insurance contributions – Voluntary Class 2 or Class 3 contributions in respect of periods abroad – Whether failure to pay was not due to failure to exercise due care and diligence – Social Security (Contributions) Regulations 2001 (SI 2001/1004), reg. 50 – Applied principles in R & C Commrs v Kearney [2010] BTC 887 – Appeal dismissed.
In the First-tier Tribunal (FTT) found that a contributor was not entitled to make voluntary National Insurance contributions (NICs) for an extended period because he had not shown that his ignorance or error in failing to make timely contributions was not due to his failure to exercise due care and diligence.
Mr McKinnon (the appellant) lived in the UK until September 1980, when at the age of 25 he left to live and work in Italy. He returned to the UK temporarily in the summers of 1981 and 1982 to work in a language school, when he also claimed unemployment benefit, thereafter he worked only in Italy. He was initially employed in Italy but became self employed in June 1991. Prior to leaving the UK the appellant had been employed for around three years following completion of his university education and teaching qualification. At a later date the appellant discovered the possibility of paying voluntary NICs and under the normal rules he was allowed to make voluntary contributions for 1996–97 onwards. HMRC refused to allow the appellant to make voluntary contributions for earlier periods because although they accepted that the failure to make contributions was attributable to the appellant's ignorance or error (Social Security (Contributions) Regulations 2001 (SI 2001/1004), reg. 50(2)(a)), they did not accept that his ignorance or error was not the result of his failure to exercise due care and diligence (SI 2001/1004, reg. 50(2)(b)).
The appellant appealed, submitting that he had exercised due care and diligence and in particular:
1) He had voluntarily contacted the Inland Revenue in 1982 to inform them that he was living and working in Italy and had sent them payslips.
2) When he left the UK he had no experience of being self-employed, his knowledge of NICs was very superficial and he thought the Inland Revenue were responsible for NICs and that the Department of Health and Social Security (DHSS) was only relevant for matters such as unemployment benefit.
3) He had relied heavily on his father for advice and given that his father was the head of pensions and salaries at a large UK company, it was reasonable to rely on that advice and not to seek other advice.
4) The fact that the appellant had followed his father's advice and taken out endowment policies in the early 1990s, and the fact that the appellant also took other professional advice from firms in Italy, showed the level of care and diligence he exercised.
5) He was not alone in his ignorance, and more should have been done to promote the opportunity of paying voluntary NICs.
The FTT did not find its decision a straightforward one, but applying the principles laid down in R & C Commrs v Kearney TAX[2010] BTC 887 it concluded that the appellant had not shown that his ignorance or error was not due to a failure to exercise due care and diligence. In particular the FTT noted that:
1) The appellant clearly knew of the existence of the NICs system, the concept of contributory benefits and the DHSS.
2) It did not accept that it was reasonable for the appellant, who was an educated person, to have assumed that the Inland Revenue dealt with all NICs matters and that contacting the Inland Revenue sufficed.
3) In the contact the appellant had with the Inland Revenue, his father, his Italian employer and professional firms in Italy he did not raise any a particular query in respect of NICs or his State pension position. His reliance on his father was somewhat passive and did not go quite as far as statute required (these points distinguished this case from Kearney and Schonfield TAX[2013] TC 02658).
4) It was clear that the concept of due care and diligence in most cases requires some kind of positive step to be taken to make enquiries.
This case provides a useful reminder that paying voluntary NICs can be useful in protecting a person's entitlement to some state benefits.
It also highlights the fact that based on the Court of Appeal's decision in R & C Commrs v Kearney TAX[2010] BTC 887, when deciding whether reliance on advice from another person can amount to exercising due care and diligence the test to be applied is a strict one.
[1] This is an appeal against a decision of HMRC dated 9 September 2015 under s 8 Social Security Contributions (Transfer of Functions, etc.) Act 1999, the effect of which was to refuse to permit the appellant to make voluntary Class 2 or 3 National Insurance Contributions (NICs) in respect of the period from 6 April 1991 to 5 April 1997.
[2] The appellant appeared in person and we should pay tribute to the very clear and helpful way in which he put his case, which had obviously involved a great deal of research, thought and preparation. We are also grateful to Mrs Crawford, particularly for the assistance she was able to give us about the historical and administrative aspects.
[3] Mrs Crawford referred us at the hearing to provisions in the Social Security (Contributions) Regulations 1979 (SSCR 1979) as the relevant provisions governing whether the appellant was entitled to make the disputed contributions. In fact, the whole of SSCR 1979 was repealed by regulation 157 and Part 1 of Schedule 8 to the Social Security (Contributions) Regulations 2001 (SSCR 2001). Regulation 157(2) has the effect that anything permitted to be done under SSCR 1979 is to be treated as though it was permitted to be done under SSCR 2001. We therefore consider that the applicable regulations are those found in SSCR 2001. Insofar as relevant to this dispute there is any event no material difference in the language.
[4] Regulation 147 SSCR 2001 permits the voluntary payment of Class 2 or Class 3 NICs for periods where the contributor is outside the UK, provided certain conditions are fulfilled regarding prior residence or contribution history. Regulation 148 goes on to provide further conditions which include that the payment is made within the period specified, which in this case is the period ending six years after the end of the year in question.
[5] Regulation 50(1) SSCR 2001 provides that if a person was entitled to pay a Class 3 contribution under the provisions of regulation 147 but failed to pay that contribution in the period specified, then if the condition in sub-paragraph (2) is satisfied the contribution may be paid within such further period as an officer of HMRC may direct.
[6] Regulation 50(2) provides:
The condition is that an officer of the Board is satisfied that:
a) the failure is attributable to the contributor's ignorance or error; and
b) that ignorance or error was not the result of the contributor's failure to exercise due care and diligence.
Regulation 61 makes provision in similar terms in respect of Class 2 contributions.
[7] Although not referred to in the submissions, regulation 6 of the Social Security (Crediting and Treatment of Contributions, and National Insurance Numbers) Regulations 2001 is also relevant. This permits contributions to be...
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