Schonfield
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 April 2013 |
| Neutral Citation | [2013] UKFTT 244 (TC) |
| Date | 18 April 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 244 (TC)
Judge Sandy Radford, Anthony Hughes
Mr Chacko appeared for the Appellant
Mrs Storey, officer of HMRC, 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 - appellant took care to appoint a recommended accountant to deal with the NIC matters - accountant failed to correctly advise appellant - appeal allowed.
The First-tier Tribunal decided that a taxpayer's failure to pay class 2 National Insurance contributions ("NICs") during the relevant period was attributable to his ignorance, which was not due to his failure to exercise due care and diligence. He exercised due care and diligence by appointing an accountant, who was most competent to deal with the matters in connection with his self-employment. Furthermore, HMRC did not send him any reminders because their records were faulty and showed that he was abroad, although they were receiving class 1 NICs from him at the same time.
The taxpayer appealed against HMRC's decision that his failure to pay class 2 NICs from December 1986 to April 2003 was attributable to his ignorance or error arising from his failure to exercise due care and diligence.
In 1986, the taxpayer decided to become self-employed as a freelance academic. As a self-employed person, the taxpayer was liable to pay the graduated class 4 contributions under the Social Security Contributions and Benefits Act 1992 ("SSCBA 1992"), Social Security Benefits and Contributions Benefits Act 1992 section 15s. 15, which was collected by the Inland Revenue (now HMRC). He was also liable to pay the significantly lower flat-rate class 2 contributions under SSCBA 1992, Social Security Benefits and Contributions Benefits Act 1992 section 11s. 11, which was collected originally by the Department of Health and Social Security ("DHSS").
In March 1988, the taxpayer's accountant ("Mr D") wrote to HMRC to register the taxpayer as self-employed. However, he did not write to DHSS or its equivalent at the time. Between then and 2009, the taxpayer properly paid tax and class 4 NICs to HMRC. However, he did not pay class 2 NICs. He was never asked for them because the DHSS, and subsequently the Department of Social Security, were unaware that he was self-employed.
In 1999, responsibility for collection of class 2 NICs was transferred to the Inland Revenue. It did not send reminders to the taxpayer for its failure to pay the class 2 NICs since its records showed that he was abroad. That was despite his statement of account that from 1979 to 1988, class 1 NICs were recorded as paid because of his employment in the UK.
The taxpayer contended that his ignorance of his liability to pay class 2 NICs did not stem from his failure to exercise due care and diligence. He did not understand his tax and National Insurance obligations. Thus, he sought and relied upon the advice from Mr D, who was a professional advisor. He had no reason to suspect that he was not properly paying NICs. That was entirely diligent behaviour for a self-employed person with no legal or financial background.
HMRC contended that there was sufficient information given or available to the taxpayer to alert him of his liability or at least direct him to make enquiries about his liability to pay class 2 NICs. He should have checked if the advice given by Mr D was accurate.
Whether the taxpayer's failure to pay class 2 NICs was attributable to his ignorance or error, which was due to his failure to exercise due care and diligence.
Held, allowing the taxpayer's appeal:
The Tribunal held that on becoming self-employed, the taxpayer exercised due care and diligence by appointing an accountant to deal with all matters which arose in connection with his self-employment. Before appointing Mr D, the taxpayer exercised due care and diligence by seeking a recommendation as to which accountant was most competent to deal with those matters. As a result of him seeking professional help, it was most unlikely that he would research the matter further himself. There was no sufficient information given to him to alert him to his liability or direct him to make enquiries about his position. Unusually, HMRC did not send out any reminders because their records were faulty and showed that he was abroad, although HMRC at the same time were receiving class 1 NICs from him. Thus, his failure to pay class 2 NICs during the relevant period was attributable to his ignorance, which was not due to his failure to exercise due care and diligence.
[1]This is an appeal against HMRC's decision that the appellant's failure to pay Class 2 National Insurance contributions for the period 28 March 1988 to 5 April 2003 within the prescribed period was attributable to the appellant's ignorance or error and that such ignorance or error was due to the appellant's failure to exercise due care and diligence.
[2]HMRC admitted that they had incorrectly quoted the start date as 28 March 1988 when in fact the appellant commenced self employment on 1 December 1986.
[3]As a result of HMRC's decision any National Insurance contributions paid by the appellant from 1 December 1986 to 5 April 2003 could not be treated as paid at an earlier date.
[4]The appellant wished to pay these contributions so that he would qualify for a full State Pension when he retires. Social Security Benefits and Contributions Benefits Act 1992 schedule 3 subsec-or-para 5AParagraph 5A of Schedule 3 to the Social Security (Contributions and Benefits) Act 1992 provided that, for the appellant to receive a full pension, he needed to have paid sufficient Class 1, 2 or 3 contributions in a total of 30 years.
[5]The appellant and his wife and Mr Greenshields of HMRC provided witness statements and gave oral evidence.
[6]Section 7(1) of the Social Security Act 1975 which was consolidated by Social Security Benefits and Contributions Benefits Act 1992 section 11 subsec-or-para 1section 11(1) of the Social Security Contributions and Benefits Act 1992 ("the Act") provides that every self-employed earner who is over the age of 16 is liable to pay Class 2 National Insurance (NI) contributions for each week in which they are self-employed.
[7]In accordance with regulation 53A of the Social Security (Contributions) Regulations 1979 and regulation 87 of the Social Security (Contributions) Regulations 2001, every person who becomes or ceases to be liable to pay a class 2 contribution shall immediately notify the relevant date to the Board in writing or by such means of electronic communication as may be approved.
[8]Originally...
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