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URL: http://www.bailii.org/uk/cases/UKSPC/2008/SPC00712.html
Cite as: [2008] UKSPC SPC712, [2008] STC (SCD) 1231, [2008] UKSPC SPC00712, [2008] STI 2413

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John Alexander Lithgow Mason v Revenue & Customs [2008] UKSPC SPC00712 (23 October 2008)

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

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.

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.

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.

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.

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

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.

The Appellant's pay was always paid in a curious manner. Instead of his being paid monthly, he was paid all of his salary, except for £69, at one point in the month, and then two weeks later he was paid what was described as a "retainer" of £69. The consequence of this was that for National Insurance purposes he was treated as having 2-week pay periods, rather than 4-week pay periods. The various lower and upper limits that govern whether salary is liable to deduction or payment of NICs are all adjusted by reference to the length of the pay periods. Thus if for instance in 1983 there was an upper limit to both Primary employee NICs and Secondary employer NICs such that no further NICs were due if weekly salary exceeded £x, it would follow that if the pay periods were two-weekly or four-weekly, the limit would be adjusted to £2x and £4x respectively. The consequence for the Appellant was that since his pay periods were technically two-week pay periods, with the bulk of his salary payments being bunched into every other payment, his salary would hit and exceed the upper limit level beyond which no NICs were due effectively as if his real pay was at nearly double the actual rate of pay. A further less significant effect of the pay profile was that since the pay of £69 in every other pay period fell below the lower limit for NICs, no contributions were due in respect of that payment. The three NIC consequences of the strange pay arrangement were thus that it resulted in the Appellant being treated as having 2-week, rather than 4-week, pay periods; it avoided NICs in respect of the retainer payments of £69 which fell below the lower limits, and it diminished (or roughly halved) the NICs strictly due in respect of the bulk of the Appellant's salary.

In 1986 a change was made such that employers became liable for Secondary employers' NICs without any upper limit, albeit that the limit remained in place for Primary employees' contributions. The consequence of this, and of the fact that all pay continued to be paid in the same manner was that the pay practice ceased to have much effect as regards Secondary employer contributions. It had a technical effect in that in contrast to the position that would have obtained, had the £69 been rolled up and included in one four-weekly payment of salary, the £69 continued to be exempt from Secondary employer NICs because it fell below a lower limit which remained in place. There was however no avoidance of employer NICs by virtue of the salary, bunched into 2-week periods exceeding the upper limit because the upper limit was withdrawn. As regards employee contributions, which are deducted from the employee's salary, albeit paid and only payable by the employer, there was no change. In other words the practice continued to occasion a significant reduction in employee contributions.

As already mentioned, the Appellant or one of his colleagues had at one point asked whether the slightly odd pay arrangements would have any adverse bearing on an employee's eventual pension and he or the colleague was told that it would not do. On reaching retirement age, and starting to receive both his basic and his SERPS pension, the Appellant has discovered that that information was wrong. The level of graduated SERPS is based on the employee's past Primary contributions, and because the pay practice always had the effect of reducing these, it follows that his pension is now considerably less than he might have expected, when he did the calculations by reference to his realistic gross salary and the Primary contributions that he would have suffered, had he had four-week, rather than two-week pay periods. The Appellant might still have had little to complain about in terms of real grievance if his SERPS pension had been reduced just to reflect the contributions that he had not suffered, by his employee contributions being reduced, because he would have had, in his pocket, the extra net salary to compensate for the lower pension. Since however the SERPS pension represents some sort of (admittedly unfunded) return on both employee and employer contributions, the real grievance is that the Exchequer appears to me making a real saving out of the Appellant's misfortune, since it has received full employer contributions in respect of his earnings since 1986, whilst it is only the artificially low level of his employee contributions that is now used to measure the level of his SERPS pension. In support of the way in which employer contributions supplement and contribute to a person's eventual SERPS pension the Appellant correctly pointed out that if a person opted out of the State Pension arrangements, it would be both his employer and employee contributions that would be available to him, for contribution into a private pension arrangement.

The Appellant's contracts, the payment arrangements and the pay certificates for PAYE purposes

There was relatively little evidence in relation to the Appellant's employment contracts with his numerous different employers. Indeed I was only shown one contract, that being dated 22 June 1993 with Loffland Nabors UK Ltd. Whilst this contract specified an hourly rate for off-shore work, and an "offshore work/field break cycle" of 28 days, with 168 hours generally worked in the 14 days spent on the rig (that being 14 periods of 12 hours) the contract was entirely silent on when the salary would be paid. It thus made no mention of the fact that it would be paid on a two-weekly basis and that a small amount would be paid as a retainer. Whether the Employee Handbook mentioned these points I do not know because I was not shown the Handbook, though it seems unlikely that it did, since the relevant clauses of the short employment contract did not cross-refer to the Handbook, whilst other clauses did in relation to matters such as Discipline and Grievance Procedures.

I was shown a series of the Appellant's bank statements which showed clearly that he regularly received payments on a two weekly basis. The PAYE statements from another employer, KCA Drilling Limited, tallied with these bank statements and showed that at intervals two weeks apart, the Appellant received the bulk of his salary, and then the residue consisting of the retainer two weeks later. The PAYE statements itemised the larger payment as a gross amount based on 14 days at a daily amount, from which it then listed the deductions for "pension, income tax (PAYE), National Insurance and Retainer", the figure for the Retainer being £69. In the following statement the Retainer would be shown, with the £69 figure then being reduced by a small figure (£2.76 in one example) for pension, and then augmented by a tax rebate of £226.59. There was then shown to be no liability in respect of this particular payment for National Insurance, since that particularly payment, on the basis of 2-week pay periods, fell below the lower salary level at which NIC contributions fell due. The bank statements then mirrored the fact that with the tax rebate, the £69 retainer actually occasioned a net payment of £292.88.

The relevant NIC Regulations

It was implicitly agreed by the parties that if salary was paid in two amounts (albeit very unequal amounts) at 2-weekly intervals, the liability for NICs would be based on the appropriate lower and upper limits geared to 2-week pay periods. This results from Regulation 3(1) (a) of the Social Security (Contributions) Regulations 1979 which provided the basic rule that if pay was paid at intervals of more than 7 days then the pay periods were to be taken to be the shortest interval at which any part of the pay was paid, if pursuant to sub-paragraph (b) of Regulation 3(1) each period was of the same length as the others, and each followed the other. Accordingly under this basic rule, the Appellant was treated as having 2-week pay periods.

I was then referred to several Regulations that enabled the Secretary of State to modify the pay periods in various circumstances.

Regulation 3(2) provided that "if the Secretary of State is satisfied that the greatest part of the earnings specified in [paragraph 3(1)(b)] is normally paid at intervals of greater length than the shortest and notifies the earner and the secondary contributor accordingly, the length of that longer interval shall thereafter be the length of the earnings period in place of that specified in sub-paragraph (a)(i) of that paragraph."

In a manner somewhat similar to the provision in Regulation 3(2), Regulations 21 and 22 provided as follows:-

"Abnormal pay practices

21 (1) The provisions of this regulation shall not apply for the purpose of any decision of the Secretary of State in so far as that decision relates to contributions based on payments made more than one year before the beginning of the year in which that decision is given.

(2) With a view to securing that liability for the payment of earnings-related contributions is not avoided or reduced by a secondary contributor following in the payment of earnings any practice which is abnormal for the employment in respect of which the earnings are paid (hereafter referred to as an "abnormal pay practice") the Secretary of State may, if he thinks fit, determine any question relating to a person's earnings-related contributions where any such practice has been or is being followed, as if the secondary contributor concerned had not followed any abnormal pay practice, but had followed a practice or practices normal for the employment in question.

(3) With the view aforesaid the Secretary of State, in any case in which he has reason to believe that any abnormal pay practice has been or is being followed, may determine any such question, if he is satisfied that it ought properly to be so determined, as if application had been duly made to him for the determination thereof.

Practices avoiding or reducing liability

22. Without prejudice to the last preceding regulation, the Secretary of State may, where he is satisfied as to the existence of any practice in respect of the payment of earnings whereby the incidence of earnings-related contributions is avoided or reduced by means of irregular or unequal payments, give directions for securing that such contributions are payable as if that practice were not followed."

Regulation 19(1)(a) was also relevant, and provided as follows:-

"Payments to be disregarded

19(1) For the purposes of earnings-related contributions, there shall be excluded from the computation of a person's earnings in respect of any employed earner's employment any payment in so far as it is –

(a) a payment on account of a person's earnings in respect of such employment and comprises or represents, and does not exceed in amount, sums which have previously been included in his earnings for the purposes of his assessment of earnings-related contributions;"

Two further Regulations are of some possible relevance. Firstly, Regulation 39 provided that:

"Where a primary Class 1 contribution which is payable on a primary contributor's behalf by a secondary contributor is paid after the due date or is not paid, or in relation to any claim for unemployment benefit, sickness benefit, maternity grant or maternity allowance, is not paid before the relevant time for such benefit, and the delay or failure in making payment thereof is shown to the satisfaction of the Secretary of State not to have been with the consent or connivance of, or attributable to any negligence on the part of, the primary contributor, the primary contribution shall be treated-

(a) for the purposes of the first contribution condition of entitlement to unemployment benefit, sickness benefit, maternity grant or maternity allowance – as paid on the day on which payment is made of the earnings in respect of which the contribution is payable; and

(b) save as aforesaid, for the purpose of any entitlement to contributory benefit – as paid on the due date."

Finally Regulation 47 provided as follows:-

Direct collection and recovery of earnings-related contributions

47. The Secretary of State may, if he thinks fit, and subject to such terms and conditions as he may impose, authorise any arrangements, whereby earnings-related contributions are paid at times, or in a manner, other than those prescribed in the last preceding regulation; and the provisions of that regulation shall be without prejudice to any remedy otherwise available for the recovery of earnings-related contributions."

I should add that the definition of "earnings-related contributions" was stated to mean "contributions payable under the Act in respect of earnings paid to or for the benefit of an earner in respect of employed earner's employment".

The contentions on behalf of the Appellant

It was contended on behalf of the Appellant that:

• his various employers had introduced artificial pay practices with a view to the reduction in liability for NICs, and that he had been ignorant of this until his receipt of unexpectedly low amounts of SERPS pension in retirement;

• the Secretary of State must have been aware of the practice, and his failure to act to counteract it almost suggested that he was complicit in the arrangement;

• whether the Secretary of State, and latterly the Board of HMRC were complicit in the arrangements, they were at fault in not counteracting the artificial pay practice, and could now collect all the under-paid contributions; and that

• since the retainer payments had been taken into account in the periods when the major amount of salary had been paid, the retainer payments should have been ignored in the periods when they were strictly paid, with the result that the Appellant should all along have been treated as having had 4-week rather than 2-week pay periods, so that the under-payment of NICs resulted from a wrong application of the law by the responsible authorities and the various employers, so that I could conclude that contributions legally due had not been collected. The correct measure of contributions due would then lead to an increase in the Appellant's SERPS pension.

The contentions on behalf of the Respondents

It was contended on behalf of the Respondents that since the Secretary of State had not in fact acted under any of the various Regulations that enabled him to vary pay periods, and such action could in any event only have future effect or effect for one prior year, it followed that in accordance with the strict Regulations the correct NICs had been deducted and paid in all periods, such that the SERPS pension being paid was being calculated correctly, so that the appeal should be dismissed.

My decision

This has been a case where the Appellant in person advanced his case in various ways, some of which were genuine and understandable though not unfortunately contentions that were strictly relevant to the issues that I could determine. In fairness to the Appellant I will add some comments in relation to those of his arguments which I consider to be outside my jurisdiction, albeit perhaps worthy of comment.

The Appellant was critical of his various past employers for having instituted and continued the unusual pay practices. The only point that seems to me to be material to this technical appeal, and to my jurisdiction, is the simple question of whether the NIC deductions and payments actually made were correctly calculated in accordance with the Regulations from time to time, and I can pay no regard to why the extraordinary pay practices had been instituted, and to why for instance the Secretary of State failed to counteract them.

It may, however, just be worth commentating that there was no evidence whatever as to why the unusual pay arrangements had been devised. They were of course markedly less artificial in the context of North Sea oil workers with 14 days on the rigs and 14 days on the mainland, than they would have been with a more common pattern of work. One suggestion was that they had been instituted with a view to stopping employees from claiming unemployment pay whilst on the mainland. Clearly another possibility is that, having been instituted well before 1983, and so at least 3 years before the upper limit to the employer's liability to make Secondary Class 1 contributions was withdrawn, they may have been introduced as a device to diminish such Secondary contributions. Whether then the pay practices were continued after 1986, in the long period after they ceased to reduce employer contributions, simply so as not to undermine the credibility of the earlier practice is now impossible to say. In short, speculation apart, I was unable to discern why the practice of paying the retainers and thereby creating 2-week, rather than 4-week pay periods, had been started, or indeed continued.

I am also unable to say why it is that the Secretary of State did not act, under any of Regulations 3(2), 21 or 22 to render the practice ineffective. It does seem strange that there are regulations that clearly point to artificial practices that will achieve unrealistic NIC results, if those given the power to undermine the practices take no action over at least a 20 year period. The Appellant suggested that the authorities were almost in league with the employers in accepting the practice. It seems highly improbable to me that the various officials over the years would have knowingly condoned an avoidance practice, and even less probable that they would have condoned it from 1986 onwards in the realisation that since the practice failed to reduce Secondary contributions to any significant degree, whilst the reduction in Primary contributions would reduce the employees' SERPS pensions, the practice would actually leave the Exchequer with a profit. It simultaneously seems strange that officials would have been ignorantly oblivious to what was happening, and to the unrealistic effect of the practice. All that I can realistically conclude, however, is that I am unable to say how it was that this practice was able to continue for such a very long period, and that whatever the explanation, the responsible authorities appear for one reason or another, or for extraordinary ignorance, to have failed to stop it, and not thus to have acted in a remotely praise-worthy manner.

For present purposes, however, there is no technical relevance to the fact that under three regulations, the practice could have been counter-acted. It may be that Regulation 21 would not have been in point for the amusing reason that the practice appears to have been so common throughout the North Sea oil industry for this large category of workers that the practice would not have ranked as one "contrary to normal industry practice". The relevant point now however is that I have no jurisdiction to say that the Secretary of State should have stopped the practice; nor can I deem the Secretary of State to have given directions to change the practice when in fact none were given. It is also pertinent to note that as the directions given by the Secretary of State could only ever have had future effect, or effect for one prior year as well, no directions given now would be of the slightest relevance to the Appellant who has been retired for some years.

The Appellant contended that under Regulation 42, the Secretary of State could collect unpaid NIC contributions in other ways that in conjunction with the PAYE income tax machinery for deduction and accounting. I have to reject this argument as well however since the power to collect unpaid contributions applies only to NICs actually due, and since no directions were given by the Secretary of State to eliminate the effect of the artificial pay practices, it unfortunately follows that the Appellant and all his co-workers were rightly treated as having 2-week pay periods, so that, one remaining point apart, it appears that the Respondents are correct to say that all NICs actually technically due were indeed paid and accounted for.

Exactly the same response applies to any contention in relation to Regulation 39 that I have quoted above. Whilst the provision for deeming contributions to have been made where they were not made, all in circumstances that the employee had been entirely ignorant about, and blameless in relation to the non-payment, sounds likely to provide redress to the Appellant in this case, it is quite clear that the provision applies only in relation to contributions legally due that were not paid, rather than to payments avoided by a legitimate (albeit artificial) pay practice that the Secretary of State either chose not to counteract or at least failed to counteract. Payments of that nature have simply been avoided and are not due, and so Regulation 39 can be of no relevance.

The one contention on the part of the Appellant that might sustain his case, and lead to this Appeal being allowed was his contention, based on the wording of Regulation 19(1)(a), quoted above, that the various employers had all included the retainer of £69 with the balance of his salary, and dealt with the NICs in relation to the total all in the one pay period. Were this so, then it seems that since the retainer would already have been taken into account in the period in which the balance of the salary was paid, it should be ignored in the period in which it was actually paid. Were this so, then there would be deemed to be no salary paid in the period in which the retainer was actually paid, and once that notion applied, it would appear to follow that there would only be 4-week rather than 2-week pay periods. It seems strange that this might have occurred because if the pay arrangements were designed to achieve a reduction in NICs of any sort, it would seem unlikely that the arrangement would have been undermined by a factor inherently geared to the essence of the scheme. But if it was so undermined, then I should not ignore this possibility.

Although the Appellant advanced this argument at the hearing, no evidence was produced to sustain the argument, so that I was initially minded to dismiss the appeal on the grounds that the factual basis for this argument had not been demonstrated. Following the hearing, however, the Appellant has advanced further information and figures which purportedly sustain this argument, albeit that I have to date been unable to understand the figures, or to verify that they do support the relevant argument. The figures seem to establish that the calculations of NICs were all slightly inaccurate, but the figures do not tally either with the figures that I would expect to see if the two consecutive payments of salary had always been dealt with for NIC purposes in one period. Furthermore, it is not clear that this feature would apply for all relevant years, and with the various different employers, for whom the Appellant worked between 1983 and 1998. I have accordingly decided to write this decision as an Interim Decision, and to issue separate Directions specifying what needs to be illustrated for the particular argument to prevail.

On the basis that the Appellant will have a further opportunity to advance the case that all of the salary payable in each month was all taken into account on only one occasion in each 4-week period for NIC purposes, I confirm that, that point apart, this appeal must be dismissed. On the basis that the Secretary of State never directed that there should be any adjustment to the actual pay periods, I confirm that there were 2-week pay periods in this case, and odd as the consequences of that might have been, it necessarily follows that the NICs actually accounted for were correctly calculated. I reach that conclusion with some caution because the figures most recently produced since the hearing do suggest that there was at least some oddity in the calculation of NICs properly due, but to date it has not been established that the calculations should have been made as if there were 4-week, rather than 2-week, pay periods.

Although I have had to indicate provisionally that this appeal will be dismissed unless the Appellant is able to sustain the argument referred to in paragraph 27 above, I did confirm to the Appellant that I would include some remarks as to whether in general terms, and ignoring the technical issue of whether there was a legal error in the collection of NICs that would enable me to allow this Appeal, I nevertheless considered that the Appellant had a grievance.

I agree with the Appellant that he indeed does have a grievance. I accept that:

• the pay practices in this case were artificial;

• it seems likely that they were intended to result in some avoidance of NICs, though this has not been proved;

• there appears to have been an extraordinary failure on the part of those responsible for exercising the discretions and responsibilities vested in the Secretary of State, and latterly the Board of HMRC, to counteract a pay practice that was artificially reducing liability to NICs; and

• the Appellant was in no way a party to the artificial avoidance of NICs, and was unaware that his SERPS pension would be adversely affected by the avoidance practices.

In common sense terms, the Appellant would actually benefit unduly, were I able to allow this appeal, assuming that I am right in my present assumption that allowing the appeal would mean that I would decide that higher Primary Class 1 NICs should actually have been deducted from his salary by his various employers and accounted for to the Exchequor, so that his SERPS pension would now be lifted to the level that would have applied had the contributions in fact been collected and accounted for. The result would then be that the Appellant would have benefited in the first place by having had a higher net salary, and would now enjoy the pension that he would have received had he suffered the higher deductions as he should have done. Were that to be the result of being able to allow the appeal, that would be understandable, but still unduly beneficial.

The result that it would seem would now be just and appropriate, and indeed just and appropriate even if in the end I have to dismiss this appeal, would be for those in authority to rectify the unfairness that the Appellant does suffer, and of which he chiefly complains. In fairness to the Appellant, he has in the past offered to settle his basic NIC grievance by now paying the Primary contributions that should, in all common sense, have been deducted from his salary, if he could now procure that his pension was at the level that would have applied had all the contributions been paid at the relevant higher levels. This is of course impractical, and this suggestion ignores interest factors, and moreover the fact that SERPS pensions are not strictly "funded" at all in the way that money purchase private pensions are funded. What would nevertheless make sense would be some arrangement under which the Appellant's SERPS pension might at least be lifted to some mid-point that might fairly reflect the fact that at least since 1986 the artificial pay practice did not materially reduce employer Secondary Class 1 contributions. The fact that the measure of the Appellant's SERPS pension is now affected just by the artificially low level of his own employee Primary Class 1 contributions, paying no regard to the fact that full employer contributions have been paid since 1986 is the real unfairness of the situation. I quite appreciate that Secondary Class 1 contributions might loosely fund other benefits than simply a part of an individual's SERPS pension, and I do not remotely comment on the amount by which, in common sense terms, it might be fair to give the Appellant some redress of the nature suggested. Whether of course the authorities are minded to consider ways in which such redress might be given is not a matter for me. I should also add that I have no way of knowing whether the particular grievances complained of by the Appellant affect just him, or several North Sea oil employees, or indeed possibly hundreds or thousands of such employees.

I assume that the Appellant will defer any continuing endeavours to obtain redress for his grievance until after the parties have addressed me further on the one remaining issue to be resolved in this Appeal. Were I to have to dismiss this Appeal, following further consideration of that one remaining matter, I hope that others with a wider remit might be able to give consideration to this case, and to what I hope I have rightly identified as the real, and very unfortunate, grievance.

HOWARD M. NOWLAN

Released: 23 October 2008