[2011] UKFTT 13 (TC)

TC00890

	Appeal number: TC/2010/01328 

National Insurance Contributions – Whether additional payments made to qualify for increased state pension – Insufficient evidence of further payments – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	HYWEL DAVIES	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	JOHN BROOKS (TRIBUNAL JUDGE)									

Sitting in public at Eastgate House, Cardiff on 8 November 2010

The Appellant in person

Alan Greenshields and Mrs Rutherford of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	Mr Hywel Davies appeals against a decision made by an officer of the Board of HM Revenue and Customs (“HMRC”) under s 8 Social Security Contributions (Transfer of Functions) Act 1992 on 3 November 2009 that he had made the National Insurance Contributions (“NIC”) set out in the schedule attached to the Decision Notice. The effect of the decision was that, as a result of his contribution record, which Mr Davies contends is incorrect, he was entitled to 75% of the standard state pension. After Mr Davies had sent his Notice of Appeal to the Tribunal, on 18 January 2010, HMRC carried out a detailed examination of the case during which a further £5,607.04 and £2,000.00 were allocated to Mr Davies’s Class 1 NIC increasing his pension entitlement to 87% of the standard rate. A new decision, varying that of 9 November 2009, was issued on 27 April 2010 to reflect the allocation of these sums. However, Mr Davies maintains that his contribution record is still not correct in that it does not take account of his payments of Class 1 NIC (which is paid by employed persons) between 1991-92 and 1994-95 or payments of Class 2 NIC (paid by those who are self-employed) after 1977-78.
2.	Mr Davies, who was 65 on 28 July 2007, spent his working life at Johns Garage in Hirwaun, from 1963 to 1978 as a sole trader; then between 1978 to 1988 as a director of Johns Garage (Hirwaun) Limited when the business was incorporated; and finally, following the winding up of the company, from 1988 as an employee of his wife, Mrs Annette Davies, who ran the garage as a sole trader until she retired in 2006. In addition to his employment Mr Davies was a partner in Cefn Don Farm from 1973 when the farm was purchased until his retirement from the partnership in 1986-87 and until 1989 he was a director of On-Site Concrete Limited. 
3.	His NIC record showed that between 1979-80 to 1982-83 and from 1984-85 to 1994-95 no contributions of any class were paid. The record also showed that contributions for 1983-84 were paid in 1991 but were “treated as not paid” as these were outside the two year time limit (Regulation 38 Social Security Regulations 1979). 
4.	Having been told in a telephone conversation with an employee of HMRC shortly before his 65th birthday that there was no record of his having made payments of NIC between 1984 and 1994 Mr Davies wrote to HMRC on 14 June 2007 enclosing documents which he believed showed that this was not the case. These documents included a copy of a letter, dated 26 September 1988, from the Department of Health and Social Security (who were then responsible for the collection of NIC) referring to outstanding Class 1 NIC for Mr and Mrs Davies, as directors of Johns Garage (Hirwaun) Limited requesting they “forward payment of £5,607.04 without delay.”
5.	After correspondence between the parties Mr Davies was able to send, with his letter of 18 August 2008 to HMRC, a copy of Mrs Davies’s bank statement and cheque book stub showing that a cheque for £5,607.04 had been made out to “DHSS NI Contributions” on 3 March 1989 which had been cleared by the bank on 7 April 1989. In their letter, of 28 October 2008, HMRC, who had no record of the payment of £5,607.04 being made, wrote:
It has been accepted and agreed that you paid £5,607.44 (sic) however there is no way of tracing the receipt of the information to explain what the payment was for and how the debt was calculated. I’m sure you can appreciate that the £5,607.44 (sic) could have been a payment to contribute towards a number of reasons, for example, Primary and Secondary (employee and employer) contributions, partly towards Mrs Davies NI account or even Tax.
6.	I also heard from Mrs Annette Davies who gave oral evidence. She said that she had started working at the garage before 1970 and was responsible for its bookkeeping and paperwork including the operation of its PAYE scheme before, during and after the period when the incorporation of the business including when she ran the garage herself as a sole trader. She recalled compliance visits from the Contributions Agency of the Department of Social Security (then responsible for NIC) which occurred every “couple of years” during which the business records, including those relating to PAYE, were inspected. Mrs Davies did not remember any issues arising as a result of these inspections and did not recollect having received NIC Arrears Notices despite these having been sent by HMRC (and its predecessors).
7.	Mrs Davies doubted the accuracy of HMRC’s record of her husband’s payments of NIC and referred to a payment of £2,000.00 which she had made in February 1991 in her capacity as a sole trader but which HMRC had allocated in 1994 to account for Class 1 NIC for 1983-84 when Mr and Mrs Davies were directors of Johns Garage (Hirwaun) Limited.
8.	However, neither the £2,000.00 or the £5,067.04 are before the Tribunal. I have already referred (in paragraph 1, above) to these sums having been allocated to Mr Davies’s Class 1 NIC and an amended decision being issued on 27 April 2010 to reflect this allocation.
9.	Turning to Mr Davies’s Class 2 NIC payments it is clear from his record that these were made by him from 1962-63 when he was the proprietor of Johns Garage until the incorporation of the business in 1978. From 1975 the payments were made by direct debit. These payments continued for the three years after he became a director of Johns Garage (Hirwaun) Limited, and liable to pay Class 1 NIC, but then stopped. Payments made in 1977-78, 1978-79 and 1979-80 were treated as overpayments of Class 2 NIC by Mr Davies and re-allocated to Mrs Davies’s contribution record.
10.	For HMRC, Mr Greenshields contended that Mr Davies must have given permission for the re-allocation of his Class 2 NIC to Mrs Davies’s record as, without his consent re-allocation would not have been possible, and that only Mr Davies could have cancelled the direct debit mandate.  He submitted that having allocated the £5,607.04 and £2,000.00 to Mr Davies’s Class 1 NIC there is simply no evidence of any further Class 1 or 2 NIC payments having been made by Mr Davies and asserts that there would have been evidence of payments had they been made. In the absence of evidence of any further payments he contends that it is not possible to allocate further sums to Mr Davies’s contribution record to increase his pension entitlement and, as such, requests that the appeal be dismissed.
11.	Mr Davies accepts that there was no concrete evidence that he made Class 1 NIC in the early 1990s apart from the payment of £2,000.00 which has been allocated to the first three years employment by his wife. He said that this employment was continuous and submitted that now payments of NIC have been allocated (out of the £2,000.00) to the first three years and were made during the last 12 years of this employment, payments must have been made in the missing four years. 
12.	As to HMRC’s assertion that there would have been evidence if payments had been made, Mr Davies referred to the £5,607.04 which had been paid by the company in 1989 and which had not been traced to this day. He referred to the fact that HMRC would not have acknowledged receipt of this sum if he had not been able to produce his wife’s cheque book stub and bank statement and contended that, on a balance of probabilities, payments of Class 1 NIC of which, like the £5,607.04, HMRC had no record should be regarded as having been made during the missing years.
13.	With regard to the Class 2 NIC payments Mr Davies said that there was evidence that it had been paid from 1975 when he signed a direct debit mandate until 1979-80 but that in 1977-78, 1978-79 and 1979-80 it had been re-allocated to his wife. He could not recollect giving permission for the re-allocation of his NIC payments to Mrs Davies but said that he would have remembered if that was the case. As he did not recall cancelling the direct debit mandate he submitted it must be still valid and it was HMRC’s (and its predecessors, who were responsible for collecting Class 2 NIC payments) failure to collect Class 2 NIC in subsequent years that led to these not being paid and argued that he should not suffer as a result of their omission. However, he did not remember having seen bank statements which would have showed that Class 2 NIC had not been paid.
14.	Although in general I accept the evidence of Mr and Mrs Davies, who were both credible and truthful, it was apparent, and hardly surprising, that due to the passage of time they were unable to recall certain aspects of the appeal such as whether Mr Davies consented to the re-allocation of his Class 2 NIC to Mrs Davies, the cancellation of the Direct Debit mandate and having received bank statements showing that Class 2 NIC had not been paid. 
15.	In relation to these matters I find that, as HMRC would not have been able to re-allocate payments of Class 2 NIC without the consent of the person concerned, Mr Davies did agree to this. I also find that, as he was the only person with the authority to do so, Mr Davies cancelled the direct debit mandate sometime in 1979-80 and therefore made no subsequent payments of Class 2 NIC.  
16.	As Mr Davies accepts, there is no evidence that he paid Class 1 NIC between 1991-92 and 1994-95. However, he has very ably argued that I should infer that such payments were made relying on the unreliability of HMRC’s records in relation to the £5,607.04 which HMRC have accepted was paid but have not been able to trace. Attractive though this argument is, it does not, in my judgment, amount to sufficient evidence that payments of Class 1 NIC have been made.   
17.	In an appeal such as this, against a decision made under s 8 Social Security Contributions (Transfer of Functions) Act 1992, Regulation 10 of the Social Security Contributions (Decisions and Appeals) Regulations 1999 provides:
If on an appeal … it appears to the Tribunal that the decision should be varied in a particular manner, the decision shall be varied in that manner, but otherwise shall stand good.
18.	The long established effect of such a provision is that the onus lies on the Appellant to satisfy the Tribunal upon sufficient evidence that the decision appealed against was erroneous (eg T Haythornwaite & Sons v Kelly (HM Inspector of Taxes) (1927) 11 TC 657.
19.	Having found that there were no payments of Class 2 NIC after 1979-80 and that there is insufficient evidence to establish payments of Class 1 NIC between 1991-92 and 1994-95 it must follow that the decision appealed “shall stand good”.
20.	The appeal is therefore dismissed.
21.	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: 10 DECEMBER 2010