[2011] UKFTT 333 (TC)

TC01193

Appeal number TC/2010/05926

National Insurance Contributions – whether married woman made an election not to pay contributions – Appeal allowed

FIRST-TIER TRIBUNAL

TAX 

	JANET MARY SPRAGGS	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)
						SIMON BIRD (TRIBUNAL MEMBER)

Sitting in public at Vintry House, Wine Street, Bristol BS1 on 18 April 2011

Richard Spraggs (the Appellant’s husband) for the Appellant

Lisa Storey of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION
Introduction
1.	Mrs Janet Spraggs appeals against a decision made by an officer of HM Revenue and Customs (“HMRC”) under s 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 on 11 June 2010 that she was “not liable to pay National Insurance Contributions from 6 April 1968 to 5 April 1975 and that from 6 April 1975 to 22 November 1987 [she] was liable to pay reduced rate contributions.”
2.	The effect of this decision is that, contrary to her expectations, Mrs Spraggs is entitled to receive 67%, as opposed to the full State Retirement Pension. HMRC say that this is because at some point during 1968-69 Mrs Spraggs made an election not to pay National Insurance Contributions and although she paid contributions at the married woman’s reduced rate from 6 April 1975 to 22 November 1987 she has made insufficient contributions to qualify for a full State Pension. However, Mrs Spraggs has no recollection of making such an election which, as it was said to have been made over 40 years ago, is hardly surprising. 
3.	Until 1975 a married woman could, under Regulation 2 of the National Insurance (Married Women) Regulations 1948, elect not to pay National Insurance Contributions and, while she remained married, the election continued to have effect unless it was expressly revoked. To make an election a married woman had to complete a form CF9 which was attached to Leaflet NI1. This explained the effect of an election including how it could affect benefits such as the State Retirement Pension. To complete a CF9 a married woman was required to sign a declaration that she either did or did not wish to pay National Insurance contributions. This would then be sent to a local office of the Department of Social Security (which was then responsible for the collection of National Insurance). 
4.	Following the change in National Insurance Contributions in 1975 a woman who had made an election not to make contributions was, by virtue of Regulation 100 of the Social Security (Contributions) Regulations 1975, deemed to have made an election under Regulation 91 of these Regulations to pay National Insurance Contributions at a reduced rate. Although the availability of an election ceased from 6 April 1977 under s 3 of the Social Security Pensions Act 1975, a woman who had made an election before then was able to continue to pay either no or reduced rate contributions in accordance with Regulation 102 of the Social Security (Contributions) Regulations 1979 until such time as the woman ceased to be married otherwise than by reason of the death of her husband (Regulation 101 Social Security (Contributions) Regulations 1979).
Evidence
5.	We heard from Mr Alan Greenshields of HMRC whose evidence was not challenged. He told us that a permanent record of a person’s National Insurance Contributions, a form RF1, was set up at the time of their registration and sent to the Records Branch in Newcastle upon Tyne where it was stored. 
6.	He explained that once a CF9 had been received at the local office of the Department of Social Security the woman who had made an election would be issued with a “special National Insurance Card” commonly known as an “exempt rate card”. When she started work this card would be given to her employer who would was responsible for deducting National Insurance Contributions and who would, in the absence of an exempt rate card be required to deduct Class 1 Contributions from her wages and affix Class 1 stamps to the Card. A National Insurance card could be only obtained by a married woman on completion of a CF9. 
7.	 In addition to issuing the exempt rate card the local office was required to send notification of the election to the Records Branch in Newcastle to enable the person’s RF1 to be noted with the choice made and the date the election began. Sometime after the election had been recorded on the RF1 the CF9 would be destroyed. Mr Greenshields explained that each time a National Insurance Card was received in the Records Branch the number of stamps was counted up and the total entered on the RF1. However, the contributions were not recorded on the RF1 if it was an exempt rate card bearing exempt rate stamps as these contributions did not count for National Insurance benefits.
8.	We were shown the RF1 for Mrs Spraggs, who confirmed that she could not remember ever completing a CF9 or making an election not pay National Insurance Contributions. This shows that she was first registered for National Insurance on 1 August 1963. On leaving full time education in 1965 Mrs Spraggs became employed and began to pay Class 1 Contributions and continued to do so up to and including 1967-68. Mrs Spraggs married her first husband on 8 December 1967 and it was recorded on the RF1 that she was married in this year but not the date. She ceased insurable employment on 29 March 1968. This can be seen from the end of year tax and graduated return submitted by her then employer, White and Co and is noted on the RF1 which also shows that in 1967-68 Mrs Spraggs was awarded 21 credited contributions as a result of sickness benefit and maternity allowance claims made in March 1968. There are no further contributions recorded on the RF1 after this date.
9.	However, there is no record on the RF1 of Mrs Spraggs having made an election or completed a CF9. 
10.	Mr Greenshields described how, from 6 April 1975, the National Insurance Scheme was reconstructed. Class 1 contributions became related to earnings rather than being paid at a flat rate and the process for recoding contributions was computerised. The 1974-75 exempt rate card, after it had been checked to ensure it was correctly stamped, was then used as an input document so that the election details were recorded on the computer record by the Automatic Data Processing section in Newcastle upon Tyne. The print out of the contribution record for Mrs Spraggs shows, as, Mr Greenshields explained, the details were entered on her record as a result of receiving an exempt rate contribution card for 1974-75. The computer record also shows that in the years from 1975-76 to 1987-88 Mrs Spraggs paid married woman’s reduced rate contributions. 
11.	The date of cessation of the reduced rate contributions, when Mrs Spraggs was divorced on 22 November 1987, would have been entered at a later date when the Department had been notified of the divorce.  
12.	Between 1975-76 and 1987-88 Mrs Spraggs was employed by Thorn Electrical who, Mr Greenshields told us, could only have deducted reduced rate contributions if they held the necessary authority to do so. Deducting contributions at the wrong rate would have rendered the employer liable to pay any shortfall in the amount which should have been paid and, in the event of a persistent failure to make the correct deductions, could lead to the employer being prosecuted especially as, at the time, National Insurance Inspectors were employed in each local Social Security office who would have checked the wages records of employers in their area.
13.	Mr Greenshields also told us that Mrs Spraggs had made two claims for sickness benefit. First in April 1978, which was based on contributions made in 1976-77, and the second in April 1981, based on the contributions she paid in 1979-80. As Mrs Spraggs had only paid reduced rate contributions in those years the claims would have been disallowed and on each occasion she would have received a letter explaining that this was because full rate contributions had not been made in the relevant year. 
Submissions
14.	Mrs Storey, for HMRC, accepts that the RF1 does not record that Mrs Spraggs made an election or completed a CF9 but contends that there is sufficient evidence to show that Mrs Spraggs did, in fact make an election not to pay National Insurance Contributions which was effective form a date during 1968-69 and remained in force until her divorce from her first husband on 22 November 1987. In particular Mrs Storey refers to:
(1)	Records show that despite the fact she was working Mrs Spraggs did not pay Class 1 contributions in the years from 1968-69 to 1974-75 which is consistent with a choice not to pay contributions;
(2)	It would have been necessary for Mrs Spraggs to have signed a form CF9 as this was the only way in which she could have obtained a National Insurance card which was necessary to allow her employers to deduct the appropriate contributions;
(3)	The deduction cards from Thorn Electrical show reduced rate contributions were deducted from Mrs Spraggs pay during the years 1975-76 to 1987-88 and such deductions could only be made if they had the authority to do so. This is consistent with an election by Mrs Spraggs;
(4)	Mrs Spraggs now accepts that she paid reduced rate National Insurance Contributions;
(5)	Mrs Spraggs disallowed claims for sickness benefit would have alerted her to the fact she was paying reduced rate contributions; and
(6)	Following her divorce on 22 November 1987 the reduced rate election ended and Mrs Spraggs would have been aware of the increase in deductions from her pay. 
15.	Also, in support of HMRC’s case, Mrs Storey referred us to the following comments of the Special Commissioner (Charles Hellier) in Gutteridge v HMRC (2006) SpC 534, (“Gutteridge”) who at [150] said:
“I do not conclude that the absence of the CF9 is evidence that it was not signed by Mrs Gutteridge.”
 At [153] he said:
“No record keeping system is likely to be immune from error and carelessness and it is clear that the National Insurance Record keeping system was no exception.”
He continued at [183-184]:
“I am not required to decide whether or not Mrs Gutteridge actually made an election, I have to decide on the evidence before me whether it is more likely that she made an election than that she did not. I have to make that decision on the balance of probabilities: I do not have to be satisfied beyond all reasonable doubt that she did or did not make the election; I merely have to be convinced that it is more likely than not that she did or did not make it. … 
… It is in my view more likely that a person would forget they had done something than believe that they had done something which they had not. When a person says she did not do something that, in my view, can only mean that she does not recall doing it. I take Mrs Gutteridge as truthfully saying precisely that.”
At [196-] he said:
“… It is a steep hill that a taxpayer needs to climb to show that her recollection of events 35 years ago is more likely to be correct than a written record where, even though it is found that that written record might be liable to error, it is also found that the likely rate of error is very small. Mr and Mrs Gutteridge went a long way up that hill but in my judgment did not reach the top. 
In reaching this conclusion I must be clear that I did not believe that Mrs Gutteridge or Mr Gutteridge were not telling the truth as they recalled it in their evidence before me but merely saying that it seems to me that their truthful account of their recollection is more likely to be an account of a faulty recollection than of a correct one.”
Like the Special Commissioner in Gutteridge, Mrs Storey made it clear that in this case there is no implication that Mrs Spraggs is being untruthful. Rather, that due to the passage of time it is difficult for anyone to recall with accuracy what they did or did not do some 40 years ago.
16.	We were also referred, by Mrs Storey, to the decision of the Special Commissioner (Michael Tildesley OBE) in Whittaker v HMRC [2006] UKSPC SPC00528 (2006). At [30(2)] he said:
“The Respondents were unable to produce the originating documents (the election form CF9 signed by the Appellant and the machine card) which generated the entry on the Appellant's RF1 regarding her election. The originating documents were destroyed in accordance with the Respondent's Record Management policy. I draw no adverse inference from the destruction of these documents as it was not done with the intention of destroying evidence.” 
At [35] he said:
“The reality of this Appeal was that the Appellant's evidence comprised of unsubstantiated statements which carried no weight when judged against the overwhelming evidence of the Respondents supporting their contention that the Appellant made a married woman's election on 1 July 1968. My findings of fact reflected the strength of the Respondents' evidence.”   
17.	In conclusion, Mrs Storey submits that the records show that Mrs Spraggs made a valid election not to pay contributions to 5 April 1975 and reduced rate contributions thereafter and that as no additional contributions can be placed on her record her present State Pension entitlement cannot be increased.
18.	Mr Spraggs, who represented his wife before us, made the point that Mrs Spraggs had absolutely no recollection of making an election or completing a CF9. He conceded that as this was purported to have taken place some 40 years ago it was unreasonable to rely on a person’s memory as credible or reliable evidence and, as such, it was necessary to rely on the National Insurance records, in particular the absence of any indication on the RF1 that an election not to pay contributions had ever been made by Mrs Spraggs.
19.	He accepted that Mrs Spraggs had been treated as having made an election not to pay contributions and subsequently paid reduced rate contributions. However, in relation to the suggestion that Mrs Spraggs should have realised, because of this, that she had made an election, Mr Spraggs referred us to Gutteridge where the Special Commissioner said [at 3]:
“Because an election continued in force from year to year without the need for renewal it would be easy to forget it had been made. HMRC suggested that the taxpayer would have been aware of the continuing of the election because she would see from the deductions from her salary or from the stamps on her National Insurance card (before 1975) that she was paying at a lower rate. For the average taxpayer I find this fanciful. I do not believe that the ordinary taxpayer either knew what the full contribution rate would have been or would have been aware that her contributions were lower than that rate. Most people look at the bottom line. If it looks about right then they accept it. They do not look at the detail of the calculations.”
Mr Spraggs reminded us that the annotation on Mrs Gutteridge’s RF1 that she had made an election not to pay contributions was the principal evidence relied upon by HMRC in Gutteridge. The Special Commissioner had said of this [at 128]:
“Upon those few letters hung the case for the Respondents.”
Emphasising that in this case there were no “few letters” on the RF1 Mr Spraggs submitted that, in the circumstances, we should allow his wife’s appeal. 
Discussion and Conclusion
20.	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… by … evidence that the decision should be varied in a particular manner, the decision shall be varied in that manner, but otherwise shall stand good…
21.	The effect of this provision was considered by the Special Commissioner in Gutteridge under sub-heading ‘Onus of Proof’ where he said at [92-100]:
[92] Mr Williams said that the regulation 10 of the 1999 Regulations placed the onus of proof upon the Appellant because it required evidence to be adduced which would cause the Commissioners to vary the decision. Fairly, he pointed out however that in this case this would put the Appellant in the position of having to prove a negative i.e. that she had not made an election. The Respondents therefore accepted the onus of proof.
[93] Section 50(6) Taxes Management Act 1970 contains language similar to that in regulation 10. It provides:
“If, on an appeal, it appears to… the Commissioners… by evidence - (c) that the Appellant is overcharged by an assessment… the assessment… shall be reduced accordingly, but otherwise the assessment… shall stand good.”
[94] This provision was recently considered by the High Court and the Court of Appeal in Wood v Holden 2006 EWCA Civ 26.  It was accepted that the effect of this provision was to place a burden on the taxpayer to show that the assessment was wrong, but that “there plainly comes a point where the taxpayer has produced evidence which, as matters stand then, appears to show that the assessment is wrong. At that point the evidential basis must pass to the Revenue.” - when the taxpayer could say we have done enough to raise a case, what more can Commissioners expect from us? The burden must pass to the Revenue to produce some material to support their case.
[95] In Wood v Holden the Court of Appeal referred to Lord Brendan’s statement in Rhesa Shipping v Edmunds [1985] 1 WLR 948 that a judge is not bound, always, to make a finding one way or the other on the facts asserted by the parties, but has open to him a third alternative of saying that the party on whom the burden of proof lies has failed to discharge it.” But that is not a course which should be adopted unless “owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take.”
[96] … 
[97] In civil cases the burden of persuading a court or tribunal generally lies on the party who substantively asserts the affirmation of an issue. But as Lord Russell said in Joseph Constructive Steamship Line Ltd v Imperial Smelting Corporation Ltd at p. 177: “the proving of a negative, a task always difficult and often impossible, would be a most exceptional burden to impose on a litigant.” What is the affirmation depends on the substance of the issue and requires a measure of common sense to determine.
[98] …
[99] It seems to me that in reality the civil law approach and the approach deriving from regulation 10 lead to much the same result. If the Respondents advanced no evidence that the form had been signed the tribunal would, if it found Mrs Gutteridge’s evidence cogent, be likely to hold for her. But once the Respondents advance evidence the tribunal’s duty is to weigh the evidence of the parties.
[100] The issue of the burden of proof arises if the Appellant advances no evidence or if the Appellant advances evidence but that evidence is so unsatisfactory as to leave the tribunal in real doubt as to whether it has any value. In such circumstances, I believe that despite the authority of Joseph Constantine Steamship Lines, the tribunal would follow the guidance of the Court of Appeal in Wood v Holden and even in the absence of evidence from the Respondents would have to dismiss the appeal. But given the comments of Lord Russell the weight of evidence necessary to raise the issue to a point at which the Appellant would succeed unless the Respondents advanced their own evidence would be light.

22.	Although, we only heard from Mrs Spraggs in answer to a question from the Tribunal confirming that she did not have any recollection of making an election not to pay National Insurance Contributions there was further evidence of this in the correspondence. Therefore, this is not a case in which the Appellant proffered no evidence or where the evidence was so unsatisfactory as to leave us in doubt as to its value and the issue of the burden of proof does not arise. Rather our duty is to weigh the evidence of the parties.
23.	The issue we have to decide in this case is whether it is more likely than not that Mrs Spraggs completed a CF9 to make an election not to pay National Insurance Contributions until 1974-75 and paid reduced rate contributions thereafter. In doing so, to paraphrase the words of the Special Commissioner in Gutteridge, we are not required to decide on the evidence before us whether or not Mrs Spraggs actually made an election but, to decide on the evidence whether it is more likely that she made an election than that she did not. We have to make that decision on the balance of probabilities that it is more likely than not that she did or did not make it. 
24.	We accept the evidence as stated by Mr Greenshields and contained in the documents submitted by HMRC and do not draw any adverse inference from the fact that, owing to its destruction, HMRC were unable to produce the CF9. 
25.	However, as Mr Spraggs has emphasised and HMRC accept, the RF1 in this case does not record that an election was made by Mrs Spraggs. In the absence of any indication of an election on the RF1 we are asked to infer from the facts, especially the matters referred to in paragraph 14, above, that such an election was made. 
26.	The records confirm that Mrs Spraggs did not pay Class 1 contributions before 1974-75; she then paid reduced rate contributions followed by an increase in contributions following her divorce in 1987. Mrs Spraggs accepts this was the case but does not agree with HMRC that it necessarily follows that she had made an election and should have been aware of this. We agree with, and adopt, the comments of the Special Commissioner in Gutteridge where he said at [179]:
“I could be asked to infer that Mrs Gutteridge would have noticed from her payslips or her year end deduction records that she was paying no national insurance (and just industrial injury insurance contributions) or national insurance at a reduced rate; and that her acquiescence on noticing that was evidence that she was content that she had made an election. I regard this last possibility as fanciful. I would not expect anyone other than a national insurance specialist to notice from their payslips or year-end certificate whether they were paying the correct amount of national insurance, or whether they were paying at a reduced rate or paying only industrial injury contributions. Mrs Gutteridge told me that she looked at her payslips but only to see the net amount. That is what almost everyone else does - they ask whether it looks about right. Mrs Gutteridge cannot in my judgment be expected to have drawn any inference relevant to this appeal from her payslips or other year-end documentation.”
As such we are unable to draw any inference from this evidence that an election was signed by Mrs Spraggs.
27.	However, we find that following her marriage in December 1967, as she would have been unable to have obtained a National Insurance card for her employer to deduct contributions without completing a CF9, Mrs Spraggs must have completed a CF9 but note that, in the absence of the document, there is no direct evidence that she made an election by signing the declaration that she did not wish to pay National Insurance Contributions.
28.	The deduction cards from Thorn Electrical, which show that reduced rate contributions were deducted during the period Mrs Spraggs worked for them are not, in our view, evidence that an election was made by Mrs Spraggs. We find support for this from Gutteridge where the Special Commissioner said [at 182]:
“Finally it does not seem to me that the fact that Mrs Gutteridge’s employers in the period after March 1969 deducted only industrial injury contributions or contributions at a reduced rate is evidence that Mrs Gutteridge made an election. That is because:
(1) once the RF1 had been annotated to indicate that an election had been made, the deduction of amounts consistent with that election would not have been investigated - contributions of lesser amounts would have been consistent with the RF1; and
(2) cards issued to employers after the making of the entry on the RF1 would have authorised the lower deductions. Those cards I believe would have been issued on the basis either of the RF1 entry or on the basis that the card surrendered was a special card or had the appropriate label affixed to it.”
Although in this case the RF1 was not annotated if, as appears to have happened, it had been assumed that an election had been made there would have been no further investigation and any cards issued or authority given to employers to make the lower deductions would have been on the basis of an election having been made. This would have also been the case in relation to the disallowed claim by Mrs Spraggs for sickness benefit which, in our judgment, cannot be relied upon as evidence of an election having been made.  
29.	Therefore, having carefully considered the available evidence we come to the conclusion (which probably would not have been the case if an election had been recorded on the RF1) that, on balance, it is more likely than not that Mrs Spraggs did not make the election not to pay National Insurance Contributions. 
30.	Accordingly we allow her appeal.
31.	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: 19 MAY 2011