Tax tribunal saves academic’s pension

Posted: 8th May 2013

university style officesA freelance academic will qualify for a full state pension despite having failed to pay Class 2 national insurance contributions (NICs) for more than 20 years. Having relied upon professional accountancy advice, the man’s failure to make the required payments between 1988 and 2009 was not due to any want of due care and diligence on his part, the First-Tier Tribunal ruled.

The man had been self-employed throughout the relevant period and had properly accounted for income tax and aid Class 4 NICs. However, his accountant had failed to notify the Department of Health and Social Security – which was in 1988 responsible for collecting Class 2 NICs - of his freelance status.

The duty to collect Class 2 NICs was subsequently transferred to Her Majesty’s Revenue and Customs (HMRC). The academic was not sent customary reminders of his liability due to a flaw in HMRC records which incorrectly stated that he had been living and working abroad for many years.

The academic was ignorant of his obligation to pay Class 2 NICs until 2009 when he promptly sought to pay all the sums due in order to qualify for a full state pension. HMRC allowed six years’ worth of Class 2 NICs to be counted towards his pension, but disallowed sums that dated back further than that.

In allowing the academic’s appeal, the tribunal noted that he had no financial or legal expertise and had relied on the advice of a qualified accountant who had been recommended to him. He had believed that he was discharging his liabilities by paying Class 4 NICs which were much more substantial than Class 2 NICs.

Because of the admitted flaw in its records, HMRC had not made sufficient information available to the academic to alert him to his liability. He had exercised due diligence by appointing an accountant to deal with his tax affairs and his failure to pay Class 2 NICs was not due to any want of care on his part. The taxpayer had offered to catch up on his Class 2 NICs swiftly after realising his error and the tribunal ruled that they should count in their entirety towards his pension.