First-tier Tribunal (Tax)

[2010] UKFTT 171 (TC)

TC00475            

 Appeal number TC/2009/11434

Late Payment of Voluntary Class 3 National Insurance Contributions – Whether failure to pay within time limits was attributable to ignorance or error due to failure by Appellant to exercise due care and diligence – Yes – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                 WILLIAM BRIAN LANGTHORNE                Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (NIC)          Respondents

TRIBUNAL:              John Brooks (Judge)

                                    Andrew Perrin (Member)

Sitting in public in Birmingham on 8 February 2010

The Appellant in person

Graeme Foster of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.     Mr William Brian Langthorne appeals against the decision of 4 June 2008 (the “Decision”) made by an officer of HM Revenue and Customs (“HMRC”) under s 8 of the Social Security Transfer of Functions Act 1999 that: —

(1)  his failure to pay Class 3 National Insurance Contributions (NICs) from 26 September 1955 to 23 July 1967 within the prescribed period is attributable to his ignorance or error which was due to a failure on his part to exercise due care and diligence; and

(2)  accordingly he is not entitled to pay contributions for the period from 26 September 1955 to 23 July 1967.

2.     As HMRC accept that Mr Langthorne’s failure to pay NICs between 1955 and 1967 was attributable to his ignorance or error, the issue for us to determine is whether this ignorance or error was due to his failure to exercise due care and diligence.

Law

3.     Regulation 5 of the National Insurance (Residence and Persons Abroad) Regulations 1948 (the “1948 Regulations”), which was in force at the time Mr Langthorne went to Bechuanaland provided that although an “insured person” who “throughout any contribution week” was “outside Great Britain” was not “liable to pay a contribution” he shall “be entitled to pay a [voluntary] contribution as a non-employed person.”

4.     Regulation 24 of the 1948 Regulations provided that, for the period between 1 August 1949 to 21 December 1956, a late payment of a voluntary contribution would be treated as “paid on the due date” if it was made within three years of the end of a contribution year otherwise it would be treated as “not paid”.

5.     Regulation 27 of the National Insurance (Contributions) Regulations 1969 (the “1969 Regulations”) extended this time limit to six years for the period between 22 December 1956 to 8 December 1969.

6.     However, where a person has not met these time limits, late payment of NICs were permitted under Regulation 32 of the 1969 Regulations and are currently permitted, under Regulation 50 of the Social Security (Contributions) Regulations 2001, if the failure to make the payment within the appropriate period “is shown to the satisfaction of the Board to be attributable to ignorance or error on his part which was not due to any failure on his part to exercise due care and diligence.”

7.     Between hearing this appeal and reaching our decision, the Court of Appeal gave judgment in HMRC v Kearney [2010] EWCA Civ 288. As with this appeal that case concerned the issue of whether the failure to make NICs within the statutory time limit was attributable to ignorance or error due to failure by Appellant to exercise due care and diligence.

8.     The Appellant in Kearney had succeeded before the General Commissioners whose decision was reinstated by the Court of Appeal because, as Arden LJ observed at [53], “while in many respects the Judge approached this case in the right way, he failed at the last to apply the test in Edwards v Bairstow with the result that he substituted his own judgment and reached the wrong conclusion.”

9.     As with this appeal, the Court of Appeal in Kearney was only concerned with, what Arden LJ referred to (at [25]) as the second condition of the statutory question, i.e. whether or not the Appellant’s ignorance was “due to any failure on his part to exercise due care and diligence.”

10.  Arden LJ said, at [26 – 27]:

To identify the nature of the statutory question, it is necessary to analyse the second condition. The subject of the enquiry under the second condition is ignorance of the need or right to make NICs. The statutory question is not, however, directed at determining what the cause of the ignorance was in the abstract. It is a much more focused question. The applicant has to satisfy the Revenue that that ignorance was not caused by his own lack of due care or diligence. So the statutory question is thus whether lack of due care and diligence by him can be eliminated as a cause. It is perhaps paradoxical that Parliament should exclude from benefits those who have been careless; it might be thought that those were the persons who most needed help from the welfare state. But that is not what Parliament has decided. Parliament has decided on the two conditions which I have already summarised.

The next question is what care and diligence mean in this context. They are not the same concept. As Mr Nawbatt [for HMRC] submits, lack of care means lack of concern, whereas diligence means a failure to apply oneself to the issue. I agree with the Judge and with Owen J in Walsh v Secretary of State for Social Security, 28 March 1994, unreported, who made a similar observation, that it is not possible to define all the circumstances that will meet the second condition. In part what is due care and diligence in any set of circumstances will depend on the obligations of the person being considered.

11.  She continued, at [29 - 31]

In my judgment, the statutory question assumes that there is at least in general a duty to make some enquiries and in appropriate circumstances to follow them up. I agree with the Judge that those enquiries need not necessarily be made of the NICO. The enquiries might be sufficiently made if they were made of the employer or trade union.

In many situations a contributor has a legal duty, backed up by a criminal sanction, to make contributions. That is not so in Mr Kearney's case as he was working abroad. When it comes to performing one's duty, the general principle of English law is that ignorance of the law is no defence. What regulation 32 achieves in a case where a contributor is under a duty to make contributions is a way of performing the duty out of time and it provides a set of conditions in which the contributor is excused from the consequences of his ignorance of his legal duty. This is an exceptional course, and the onus will be on him to bring himself within the conditions.

It is to be noted that, in answering the statutory question, the period to be examined is not the entire period from the time when the duty or right arose, but simply the period in which the payments were required to be paid, or (in cases where there was an option to pay) the period in which the option might be exercised.

12.  Having referred to HMRC’s Guidance Manual dealing with extension of time limits for paying NICs Arden LJ said, at [34 – 37]:

In my judgment, this guidance reflects the correct approach, which is to treat all relevant circumstances as factors which have to be balanced together to reach an assessment or evaluation on a case-by-case basis as to whether due care and diligence was exercised and, if not, whether the failure was the cause of the contributor's ignorance of his obligation to pay contributions when he was bound or entitled to pay them. This more nuanced approach can also be seen from the Explanatory Statement dated February 2008 by the Revenue made to a meeting of the Working Party of the Overseas Pensioners' Association, where it was said that earlier decisions had to be treated as providing guidance on what should be considered necessary for the exercise of due care and diligence. Those decisions could provide "a framework" within which the Revenue could consider individual cases.

Like the Judge, I do not think it is possible to produce a definitive list of relevant factors. However, they would include the contributor's age and any relevant physical disability or incapacitation. Thus Mr Nawbatt accepted that a 19-year-old student might be in a stronger position to show that he had exercised due care and diligence when he took no action to pay contributions than an older person already in employment. Moreover, a person may have known about the NIC scheme and gone abroad, leaving, like the Good Samaritan with the innkeeper, a sum of money with another person, whom he thought reliable. He may have instructed that person to make payments of NICs. If that person fails to pay NICs on time, the contributor may be able to show that his ignorance of the failure to pay was not due to lack of due care or diligence. In some circumstances, therefore, doing nothing in terms of contacting the NICO may (as the Judge accepted) not be fatal. However, as I see it, a person need not be induced to take no action by a positive misrepresentation. To take an obvious example, a person may be incapacitated by illness during the relevant period. A person may also have language difficulties which may require to be taken into account.

Knowledge of the NIC scheme is also likely to be a very important factor, but it may have to be established what the source of his knowledge was and generally the degree of knowledge. Moreover, there cannot logically be an absolute rule that, if the contributor has knowledge of the existence of some aspect of the NIC scheme, he can never show that he exercised due care and diligence unless he made further enquiries about his rights or obligations. It must, as the Judge recognised, all depend on the circumstances. Nonetheless, it will be an unusual case in which a person is able to show that, while he made no contributions even after learning the basic features of the NIC scheme, he nonetheless exercised due care and diligence

The decision-maker also has to look at the circumstances as they stood at the time. People can now be expected in many parts of the world to have access to the internet or to mobile phones, but that would not have been the position in the 1960s.

Facts

13.  Having heard from Mr Langthorne and read the documents provided to us by both parties we find the following facts.

14.  Between 1955 and 1967 Mr Langthorne, who was born in 1930, was resident in what is now Botswana, but was then known as Bechuanaland, serving with the Bechuanaland Protectorate Police following his recruitment by the Crown Agents. During this period he did not make any NICs and was not aware that he could have made voluntary Class 3 NICs which would have increased his pension entitlement on retirement.

15.  Before going to Bechuanaland Mr Langthorne had served with the RAF and had been employed by the East Riding of Yorkshire Constabulary where he had made payments of National Insurance Contributions and obtained sickness benefit in 1951. He was therefore aware of the link between contributions and benefits under the National Insurance scheme and therefore of the scheme itself.

16.  On his return to the United Kingdom from Bechuanaland in 1967 Mr Langthorne commenced business as a self employed grocer & sub-postmaster.

17.  Being aware of the National Insurance scheme he visited an office of the Department of Health and Social Security (“DHSS”) to enquire about how he should go about paying “self-employed” NICs. However he did not tell anyone at the DHSS office that he had recently returned to the United Kingdom following 12 years working abroad and he was not asked if he had been out of the country or what he had done before making that enquiry.

18.  Mr Langthorne continued in his self-employment until 1972 when he became employed and in 1978 went to live in Spain where he was self-employed. He paid voluntary Class 3 NICs for most years whilst in Spain (this appeal is not concerned with gaps in contributions during this period).

19.  When he reached retirement age (65) in 1995, as a result of his failure to pay voluntary Class 3 NICs during his time in Bechuanaland he was only entitled to receive a reduced state retirement pension.   

Contentions of the Parties

20.  Mr Foster, for HMRC referred to the fact that Mr Langthorne was aware of the National Insurance Scheme before he went to Bechuanaland and should have made enquiries on his return about Class 3 voluntary NICs and had he done so would have been properly informed.

21.  Mr Langthorne’s case was that he did exercise due care and diligence as he had made enquires of the DHSS about NICs (albeit on a self-employed basis) on his return from Bechuanaland in 1967.

22.  He contended that the DHSS was under a duty to inform him about the gap in his contributions and should have advised him at that time that he was able to make voluntary Class 3 NICs.

Decision

23.  It is clear from the decision in Kearney that it is for Mr Langthorne to show that his failure to pay Class 3 NICs between 1955 and 1967, although attributable to his ignorance or error, was not due to his failure to exercise due care and diligence.

24.  Having carefully considered all the circumstances of the case and having found that Mr Langthorne was aware of the National Insurance scheme before he went to Bechuanaland, we conclude that by not informing the DHSS on his return in 1967 that he had been working abroad for 12 years, even though he made enquires about “self-employed” NICs, he did not exercise due care and diligence.

25.  We therefore dismiss the appeal.

26.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN BROOKS

TRIBUNAL JUDGE

RELEASE DATE: 14 April 2010