Beamish v Her Majesty's Revenue & Customs [2009] UKFTT 271 (TC)

FTT-Tax

Beamish v Her Majesty's Revenue & Customs

[2009] UKFTT 271 (TC) · 2009-10-13

National Insurance contributions - whether appellant had a good contribution record for his retirement pension claim - appeals to be heard by tax tribunals not social entitlement tribunals – checks undertaken by National Insurance Contributions Office

FIRST-TIER TRIBUNAL

TAX

THOMAS JOSEPH BEAMISH Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (NI contributions) Respondents

TRIBUNAL: Judge David Williams

Sitting in public in Manchester on 2 09 2009

The Appellant in person

Angela Main Thomson of the office of the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

Stephen Cooper, solicitor, instructed by the Solicitor to the Department for Work and Pensions for the Secretary of State for Work and Pensions, also participating in the hearing.

© CROWN COPYRIGHT 2009

DECISION

The linked tax and social security pension appeals

1 Mr Beamish reached pensionable age on 3 April 2001 and made a timely claim for his state retirement pension from the next week. He had asked for a pension forecast before that. He was told that he was not entitled to a full pension as he had not made the necessary level of National Insurance (NI) contributions for 44 years of his working life. This resulted in correspondence between the contributions records staff and his accountants in 2000. This included, in a letter dated 27 November 2000, a list produced by accountants of Mr Beamish’s work dates from April 1951 to the date of the letter. He was awarded a state retirement pension from 16 April 2001. It was not a full pension. This was because he did not have a full NI contributions record. He disagreed with this and appealed.

2 Having set the scene, I must interpose that the decision about his pension was a decision taken by the Pension Service of the Department for Work and Pensions (“DWP”) for the Secretary of State for Work and Pensions. It is not a decision by the respondents to this appeal, Her Majesty’s Revenue and Customs, or its predecessor the Inland Revenue (both referred to as HMRC in this decision.) It was several years later – on 21 August 2006 - that HMRC took the decision that is the immediate focus of this decision.

3 There is a long history behind the decision of 21 August 2006. It is fully relevant to Mr Beamish’s concerns about his pension and his contribution record. Mr Beamish thought he was taking the right steps to appeal the decisions about his NI contributions when he appealed against the Pension Service decision. For the reasons below, he was not. But in my view his attitude and actions are fully understandable. DWP Pension Service repeatedly stated or implied in its letters to him that it was keeping the records and making the decisions about his contribution records, when it was not and had no power to do so. I can see nothing in the papers on file between 2000 and 2005, despite continuing correspondence and a whole series of revised decisions about his pension, to indicate that Mr Beamish’s proper course of action was to take the matter up directly with HMRC’s NI Contributions Office (“NICO”).

4 This dispute first came before me in my then capacity as a social security commissioner. This was on appeal from a decision of a social security tribunal about Mr Beamish’s pension entitlement and his contribution record. I received in that capacity notification of the decision of HMRC. It is now before me in my capacity as a judge of the First-tier Tribunal tax chamber. Having seen initial submissions from the Secretary of State for Work and Pensions, I asked a registrar to point out to Mr Beamish that he would have to appeal against the HMRC decision on 21 August 2006 to the then Special or General Commissioners of Income Tax if he wanted to continue to dispute his contribution record. He did so in 2007 and – after further delays – that appeal is now before me.

5 Because of the delays and because the social security tribunal had purported to take the decision I must now take, I directed that I would hear Mr Beamish’s appeal against the decision by HMRC. I would then immediately after it hear the appeal of the Secretary of State for Work and Pensions against the decision in his favour by the social security tribunal. I did so on at a single full hearing in Manchester at which Mr Beamish put his case and Miss Main Thompson and Mr Cooper put the cases for the two government departments. I am grateful to all of them for their cooperation and in particular for Mr Beamish agreeing to both government representatives participating in the hearing of both appeals so that we could get to the heart of the issues that concerned him.

6 It was accepted on all sides that I and all the parties could draw on the evidence in either appeal as relevant to both appeals. I do so in this decision, and in particular draw on the documents submitted in both appeals to provide a full account of the course of these appeals. I consider Mr Beamish deserves an account of why it has taken nearly 10 years to resolve issues with his contribution record first raised in 2000. I now turn to that history.

The dispute about the NI contribution record

7 Correspondence continued between Mr Beamish and the DWP Pension Service about the level of pension. It was crystallised by a letter from the Pension Service to Mr Beamish on 18 September 2003 which stated:

“I have received the information from our Contributions Department and, after checking your award again, I can confirm that your Retirement Pension is correct. The Contributions Department have recorded that for the following years no contributions have been paid:

1975/76, 1976/77, 1977/78, 1978/79, 1979/80, 1980/81, 1981/82, 1982/83

1983/84, 1986/87, 1987/88, 1988/89.”

8 That letter was wrong in law, and misleading to Mr Beamish, on two counts. First, the “Contributions Department” was not “our” department. It was, and is, the National Insurance Contributions Office of HMRC, the Respondents. Second, the Pension Service was not in a position to “confirm” the contribution record. It could merely repeat what it had been told. The duty of maintaining the records of NI contributions were transferred from the DWP to the Inland Revenue and thence to HMRC by the Social Security Contributions (Transfer of Functions) Act 1999 from 1 April 1999 and then by the Commissioners of Revenue and Customs Act 2005. The duty and power to make decisions about NI contributions were also transferred to officers of HMRC, governed by section 8 of the 1999 Act and the Social Security Contributions (Decisions and Appeals) Regulations 1999 (SI 1999 No 1027).

9 Things got worse for Mr Beamish in 2004. He received a letter dated 18 June 2004 apologising for a reduction in the weekly amount of pension he was to receive. This was because his NI contributions “were recorded wrongly in our computer” – more accurately, the HMRC NICO computers. That letter was from DWP Pension Service. The letter notified a decision taken on 28 May 2004. It is recorded in the papers in the following terms:

“On 28 May 2004 Mr Beamish’s retirement pension entitlement was revised for a fourth time when the decision maker decided that he was entitled to a lower amount of £81.88 per week.”

10 Mr Beamish appealed again it on 18 June 2004. Yet more correspondence followed. And on 1 October 2004 there was a fifth revision of the 2001 decision, and things got a little better. It was revised because of departmental error. The total amount of pre-1975 contributions and credits had been incorrectly calculated. The weekly pension was revised to £85.51. Mr Beamish appealed again, on 2 November 2004.

11 After a period waiting for an official submission from DWP on the appeal, the papers went to a tribunal chairman. The chairman directed that the matter be referred to HMRC under regulation 38A of the Social Security and Child Support (Decisions and Appeals) Regulations 1999 on 4 February 2005. Regulation 38A(1) provides, in its current form:

“ Appeals raising issues for decision by officer of Revenue and Customs

(1) Where a person has appealed to the First-tier Tribunal and it appears to the First-tier Tribunal that an issue arises which, by virtue of section 8 of the Transfer Act, falls to be decided by an officer of the board, that tribunal shall -

(a) refer the appeal to the Secretary of State pending the decision of that issue by an officer of the Board; and

(b) require the Secretary of State to refer the matter to the Board

a nd the Secretary of State shall refer that issue accordingly.”

12 The chairman took precisely the action he was required to take under that provision as then worded. At that time the Secretary of State for Work and Pensions had responsibility for the administration of the tribunal as well as the Pension Service.

But the tribunal did not refer the matter direct to HMRC. Instead, it wrote to the Pension Service with the chairman’s direction. The Pension Service replied that “we operate on a national clearance target of 90 days and our target for this appeal is 22 June 2005. The appeal submission is therefore unlikely to be written within 6 weeks as requested by you.” At the same time the Pension Service raised the matter with NICO.

13 No submission was received by the tribunal. The tribunal staff contacted the Pension Service several further times to chase the submission. On 20 September 2005 a tribunal chairman told the tribunal staff to continue chasing. After the Pension Service itself chased NICO again, the matter was referred back to a tribunal chairman again. On the third occasion it went back before a tribunal chairman, the direction given by the chairman was to list the case if there had been no further reply within a short additional time. There was no further reply. The appeal was therefore listed before a social security tribunal on 12 December 2005. Mr Beamish attended. The Secretary of State was not represented, nor was any further submission made from DWP either directly or for HMRC.

14 The tribunal allowed the appeal. After rehearsing what was then a 5 year history of trying to establish Mr Beamish’s contribution record, it gave its decision as follows:

“I have heard and seen Mr Beamish and found him an impressive and wholly credible witness. He has worked all his life and indeed continues to do so. He has always paid full NI contributions …

Mr Beamish’s accountant has previously confirmed that he has a full NI payment history.

…

On 27 07 2005 it was admitted by NIC that his papers had proved to be irretrievable.

Mr Beamish has provided all the information which has ever been requested of him including full details of his career from 1951 – present and continuing. I am satisfied that he has a full contribution record and allow his appeal.”

15 There was a prompt application to appeal on behalf of the Secretary of State, accompanied by an apology for the absence of both a submission and any attendance at the tribunal hearing. There was a request that the decision be set aside. The chairman – now the Regional Tribunal Judge – refused the set aside and gave permission to appeal. He did so because:

“what has happened where is typical of the impasse many appellants reach when the tribunal or [now – a tribunal judge] makes a direction concerning contribution questions. It is in the public interest that the Secretary of State and/or HMRC should explain what is going on to the higher judiciary.”

16 That appeal first came before a social security commissioner in June 2006.

The commissioner directed a full submission from the Secretary of State for Work and Pensions. After that submission had been received, the decision of HMRC on 21 August 2006 came to light, together with a statement that Mr Beamish had not appealed the decision. He subsequently did so, but not until April 2007. His late appeal was accepted. There were then further delays partly because the appeal was caught up in the issue whether it should go to the then Special Commissioners of Income Tax or the then General Commissioners of Income Tax. That problem was then overtaken by the merger of both into the new First-tier Tribunal in April this year. The social security tribunals became part of the same tribunal in November last year.

The decision under appeal

17 The decision of 17 August 2006 was itself a revised decision as HMRC had taken a decision on 26 July 2006. The authority under which decisions are taken by HMRC on NI contribution questions was not changed by the Social Security (Transfer of Functions) Act 1999. That Act changed the identity of the decision makers only, not the powers under which, or the procedure by which, the decisions are taken. They are therefore taken under the decision making powers given by the Social Security Act 1998 subject to any regulations made under section 10 of the 1999 Act. Regulation 5 of the Social Security Contributions (Decisions and Appeals) Regulations give an officer of Revenue and Customs a power to vary a decision made under section 8 of the 1999 Act if there is reason to believe it was incorrect when made. That is a separate power to the powers in the Social Security Act 1998 to revise decisions. It has the effect of replacing the previous decision with a new decision. So I need not look at the previous decision.

18 The decision at which I must look is the decision on 21 August 2006 that:

“from 4 March 1974 to 29 December 1984 you have paid contributions as per

the attached schedule.”

The attached schedule indicates that no contributions of any class were paid for any of the years from 1974/75 to 1984/85 (stopping at 29 December 1984) save for a small number of Class 2 contributions in 1983/84. The agreed facts are that the payment of Class 2 contributions was made late by Mr Beamish to the HMRC Insolvency Department for the 1983/84 contribution year.

19 Evidence about the contribution records was given by Mr Greenshields, now an officer of Revenue and Customs, who had worked on and with the NI contributions records for many years. He had checked the records held by NICO against the available information and gave evidence that in his view the decision under appeal was correct. He produced copies of the relevant records and other supporting information. Mr Beamish gave his own account of his work during the years in question but was unable to produce any supporting documentation additional to that already produced.

20 The 11 contribution years in question are best considered in two groups: those before April 1975, when paper records on a form RD1 were kept by the then contribution records office, and those from April 1975, when the Social Security Act 1975 took effect and the records were kept on computers.

21 Mr Beamish’s record for 1974/75 was kept manually on the standard RD1 form discussed by me in Rose v Her Majesty’s Commissioners for Revenue and Customs [2006] UKSPC SPC00574 , 20 September 2006. I heard from both Mr Beamish and Mr Greenshields about this, and was shown that form. I find that the record shows that there were no contributions made by Mr Beamish that year, and that the record is correct. Mr Beamish had been self-employed for some years before that year. He had been consistently late in paying his Class 2 contributions (then paid by stamps on his NI contribution card). In that year the reminder to return his contribution card had been returned to sender by the Post Office, so Mr Beamish did not receive the usual reminder. That may indicate why he did not pay that year.

22 The records for the ten years from 1975/76 are drawn from the HMRC NICO computer database in form RD18. Save for the agreed payment in 1983/84 the form shows no contributions paid or credited for any class. By contrast, the employment history put by Mr Beamish both to the social security tribunal and to me showed a full working life. It was the same as that given to the Pension Service in the letter from the accountants in 2000. That letter set out the details, with the commentary:

“... please find work dates as follows:”

That is important because the letter does not actually state that Mr Beamish was an employee of the companies and firms named, or that they employed him. The relevant part of the listed work and dates is:

1968 – 78 TJB Upholstery

1978- 82 Liverpool Window Framing Ltd

1982 – 85 (Dec) Pool Windows Ltd

23 NICO formally checked Mr Beamish’s record. It found a partial record both for these periods and for others. Following correspondence with Mr Beamish, it undertook thorough searches of its records. I am told that when NICO check a record after 1975 it undertakes a series of checks to see if it holds records of contributions paid that have not been assigned to the individual. One check is against the identification details of the individual (date of birth, NI number) and the NICO data on unassigned contributions. Another check is against the records of returns made by employers. These can involve manual checking of microfilmed records so clearly take time. A further check can be with Companies House both against the individual’s name and against that of any company said to be an employer. NICO undertook all those checks for Mr Beamish.

Findings: 1975 to 1978

24 Mr Beamish’s work with TJB Upholstery was as a self-employed person. TJB was a partnership and he was a partner. Mr Greenshields gave evidence of a history of late payment by Mr Beamish of Class 2 self-employed NI contributions he made or should have made. Mr Beamish honestly accepted that he had been a slow payer over many years. Mr Greenshields accepted that Mr Beamish had paid contributions to the end of the 1973/74 year. As noted, the RF1 record showed that the usual demand for contributions for 1974/75 was returned to NICO as undelivered. NICO had no other address for Mr Beamish and was unable to take matters further. I find that Mr Beamish was self-employed during this period and that he was liable to pay Class 2 contributions. There is no record that any were paid. He is unable to produce any evidence of payment. I find that on the balance of probabilities they were not paid.

Findings: 1978 to 1984

25 Mr Beamish stated that he then worked for Liverpool Window Framing Ltd until 1982. A company search showed that this firm was dissolved in 1991 and records had been archived. The NICO searches showed that the company made an end of year PAYE and NI contributions return for Mr Beamish for the year 1984/85. The form did not include Mr Beamish’s NI number, as it should have done. The contributions had not been linked with his contribution record. They now have. A record from that company for 1985/86 showed that he left their employ in February 1986. Again the record shows contributions paid but no NI number, so again contributions did not go automatically to Mr Beamish’s NI contributions record. Further, the records from the employer for 1983/84 were checked and do not include him as an employee.

26 The letter from the accountants in 2000 stated that Mr Beamish worked for a company called Pool Windows Ltd from 1982 to 1985. There is no record held by NICO of any company of that name making contribution payments during that period. But there are contemporary records showing that Liverpool Window Framing Ltd did so. As the NICO records are duplicates of the records submitted by employers for PAYE tax purposes this probably means that there are no tax records held either. The company search at Companies House was against the name “Pool Window Framing Ltd” and not Pool Windows Ltd. That may explain the absence of records. But there is no clear evidence on any document of the proper name of that company. In any event, the records that do exist and show him as an employee of Liverpool Window Framing Ltd overlap with the period when Mr Beamish said that he worked for the other company and are irreconcilable with his evidence.

27 Mr Beamish was asked if he could explain how records came to show that he had been employed by Liverpool Window Framing Ltd for some years after he said he was, and if he had any explanation about the absence of official records for Pool Windows Ltd. I accept Mr Beamish’s evidence that he faced several difficulties in dealing with these questions. The business in which he was then involved suffered serious physical and financial damage from the Toxteth riots in 1981. The business was based in Toxteth and its premises were directly affected by events at that time. One consequence from the riots was that he became personally bankrupt the following year. In addition, personal records held at home had been accidentally destroyed some time after he retired.

28 In reply to questions, Mr Beamish accepted that he had been a director of Liverpool Window Framing Ltd. He could not now recall details fully, but there was another director. He was paid a weekly wage and was not paid directors’ fees or any dividends. He was not a shareholder. He had not been responsible for bookkeeping, and he could not now contact the former bookkeepers. He thought that the company had ceased trading in 1982 because of debts – when he was made bankrupt. He did not know why it had continued to make returns after that date. He was not previously aware that it had done so. It was put to him that perhaps the company continued in form to deal with the business being conducted under the name of Pool Windows Ltd. Mr Beamish was unable to explain further how returns had been made for him in respect of his later employment by Liverpool Window Framing Ltd and not Pool Windows Ltd.

29 Mr Beamish also told the tribunal that during part of the time he had handed over running the business to another member of the family. This had not worked out well, and he had lost out as a result. He could recall that he was paid weekly during that time by the company and that deductions had been made from his pay in the usual way, with a note of the sums being written on the pay envelope. He knew the bookkeepers from the period, but had been unable to track them down for this appeal. He could not produce any supporting evidence.

30 The question for me is whether NI contributions were paid to HMRC (and its predecessors) for the years in question. Someone who is self-employed normally pays the contributions directly. It is therefore probable that if they have paid the contributions then HMRC will have received them. I took that into account in deciding that Mr Beamish had no relevant contributions when self-employed in 1974/75. The situation is different where someone is an employee. In that case the employer should deduct the contributions from the employee’s pay. They should then be paid over, with the employer’s own contribution, to HMRC by the employer together with income tax collected under the PAYE system. It can therefore be the case that an employee has had contributions deducted, and so has paid them, but that they have not been paid over to HMRC by the employer.

Conclusion

31 There is a provision that can assist some employees in this situation. Regulation 60 of the Social Security (Contributions) Regulations 2001 deals with the treatment for the purpose of contributory benefit of unpaid primary Class 1 contributions where there is no consent, connivance or negligence on the part of the primary contributor. Paragraphs (1) and (2) provide:

“(1) If a primary Class 1 contribution payable on a primary contributor’s behalf by a secondary contributor is not paid, and the failure to pay is shown to the satisfaction of an officer of [Revenue and Customs] not to have been with the consent of connivance of, or attributable to any negligence on the part of the primary contributor, that contribution shall –

(a) for the purpose of the first contribution condition of entitlement to a contribution-based jobseeker’s allowance or short term incapacity benefit as paid on the date on which payment is made of the earnings in respect of which the contribution was payable; and

(b) for any other purpose of entitlement to contributory benefit, as paid on the due date.

(2) In paragraph (1)(a) “the first contribution condition” in relation to a contribution-base jobseeker’s allowance means the condition specified in section 2(1)(a) of the Jobseeker’s Act 1995.

“Due date” is defined by regulation 1 of those regulations as the date on which the payment (by the employer to HMRC) was due.

32 I considered whether I should refer the matter back to HMRC to decide whether there was a case for applying this advantage to Mr Beamish. However, I cannot see any factual basis on which to do so. There is no clear evidence that identifies an employer against which any application of the rule should apply. There is a clear clash between the evidence put forward by and for Mr Beamish and the documents now produced from the NICO records as to Mr Beamish’s employer at the relevant time. Mr Beamish has no additional evidence. Nor is there likely to be any other evidence to be considered if the matter were referred back to NICO under regulation 60. I therefore exclude that approach to answering the question.

33 I find that the only conclusion I can reach on the evidence is that the contribution record, as it is now before me, is on the balance of probabilities the correct record. I emphasise that the decision is on the record now before me. That record has been amended several times between the record that was the subject of Mr Beamish’s first appeal and the much-revised record now before me. Most, but not all, of those variations were to Mr Beamish’s advantage. As he described it to me, each time he appealed they appeared to find some more contributions. It was understandable that he would go on appealing. My judgment is that his appeals have now resulted in the best decision available to him on all the evidence. On that basis I confirm the HMRC decision under appeal.

General comment

34 The history shows that there was good cause for NICO to take some time looking at Mr Beamish’s record. It was far from the straightforward matter that the social security tribunal assumed. For parts of his working life Mr Beamish was self-employed. During that period he was alone responsible for paying his contributions. He admitted that he was not a prompt or full payer during that period. Separately, part of Mr Beamish’s liability to pay contributions was overtaken by bankruptcy. For another period he had been a director of a company with which he was working, although he was paid only as an employee. During another part of the time he was an employee the employing company was being run by another member of his family. NICO found other problems checking Mr Beamish’s record, including incomplete returns by an employer. All these factors involved considerable detailed investigation. The social security tribunal decision dealt with none of these points. Nonetheless, that does not explain why it took nearly a decade and, in total, something like seven revisions or variations of the official view taken of Mr Beamish’s contribution record, and several appeals against those decisions, to move from Mr Beamish’s original challenge against the estimate of his pension entitlement to this decision.