[2010] UKFTT 300 (TC)

TC00588

Appeal number: TC/2009/14706

NATIONAL INSURANCE -  Married Woman’s Election to pay contributions at reduced rates – accuracy of computer records after 1975 - form of authority given to employers to allow reduced rate contribution to be deducted  -whether further election made after divorce and remarriage –- on balance of probabilities , election made – appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	LINDA ALICE McLAGGAN	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 	Barbara J King (Judge)									Warren Snowdon (Member)

Sitting in public in Newcastle on 23 April 2010

The Appellant appeared in person with her husband, Mr William Mc Laggan

Alison Johnson, officer of HMRC appeared for the Respondents

© CROWN COPYRIGHT 2010

DECISION
The Appeal

1.	The Appellant was appealing against the decision of the Respondents dated  20th May 2009 which stated that 
“From 6 April 1975 to 5 April 1988 Mrs McLaggan was liable to pay Class 1 National Insurance contributions at the Married Woman Reduced rate.”
The issue in dispute
The issue in dispute is whether the Appellant, Mrs McLaggan,  made an election to pay married woman’s rate National Insurance contributions after she married Mr McLaggan on 8 November 1975. Mrs McLaggan accepts that she made an election during an earlier marriage, such election having been invalidated when she divorced her first husband. She asserts that she did not make a further election after she married Mr McLaggan. The Respondents say that an election was made by a signature on a form but that this form was destroyed under a policy not to retain all documents after 6 years.
 The evidence
2.	The Respondents produced a bundle of documents which included an “RF1” handwritten record for Mrs McLaggan. They also included a “Technical Copy of Account” which the Respondents say is a summary of the record for Mrs McLaggan from the computer system used by the Respondents between 1975 and 1998.  Mrs Lorraine Rutherford, an officer who worked for the records branch for Social Security contributions (known as National Insurance contributions) from 1968 gave evidence for the Respondents about procedures.  
3.	Mrs McLaggan relied on the letters which she had written over the last four years and which were in the bundle. She produced her husband’s army record which gave details of where he had been located during his service and we heard oral evidence from both Mrs McLaggan and Mr McLaggan.
4.	Mrs McLaggan had been born in Scotland in 1951. She ceased full time education on 30 June 1966 and started work. She married Mr Holleran on 19 April 1968 and had two children born on 23 September 1968 and 19 May 1970. She gave evidence that the marriage was unhappy and she left Scotland in 1973. She had her two small children with her, then aged approximately 5 and 3, and she was not working.
5.	There are no entries on the RF1 in 1973 but it shows several entries in 1974. Two entries in 1974 record married woman’s elections. The first is dated 28 March 1974 and the second 18 November 1974. On 18 November 1974 there is also an entry which indicates that Mrs McLaggan had started a non participating employment “NPE  18/11/74”. A change of address is recorded on 17 December 1974 and on the same day an entry is made indicating “PIL 17/12/74”.
6.	Mrs McLaggan could not recall making two elections in 1974 but she did not assert that these entries were wrong. On balance we find that these entries are correct.
7.	Mrs McLaggan obtained a divorce from her first husband on 6 March 1975. She worked for Roundway hospital for a short period, leaving on 20 May 1975 and she then married Mr McLaggan on 8 November 1975. She moved to Germany in approximately December 1975.
8.	 The divorce nullified her election to pay reduced rate contributions and so it was an error for Roundway Hospital to have collected these in the tax year 1975 -06. By the time the error was realised, Mrs McLaggan had moved to Germany with Mr McLaggan and the Respondents made no attempt to inform Mrs McLaggan of the error. 
9.	The new computer system operated by the Respondents ( or the Department of Social Security, who had responsibility for the recording of contributions and benefits at that time) started  from 6 April 1975. The RF1 was preserved and in Mrs McLaggan’s case it is apparent that some entries continued to be made on the RF1 as well as being made on the new computer system.
10.	The entries about her contributions collected by Roundway hospital do not appear on the RF1, but only on the computer record and this records that reduced rate contributions were paid in the tax year 1975-76 but these have been classed as standard A rate ( ie full rate contributions).
11.	Mrs Mc Laggan gave evidence that she started work with the Navy, Army and Air Force Institutes (the NAAFI) in Germany in approximately June 1976. 
12.	At the end of the tax year 1976 -77 the NAAFI produced a record of the total pay and contributions collected from Mrs McLaggan. The copy of this sent to the Respondents (known as a P14) has been produced. It shows that they have deducted category B –reduced rate national insurance contributions for Mrs McLaggan. The Respondents case is that the NAAFI could only have had authority to make deductions at this reduced rate if the NAAFI held a CF380 certificate of election and that this certificate would only have been issued if Mrs McLaggan had made a further election to pay reduced rate contributions, after her remarriage in November 1975. As all earnings from the NAAFI are recorded only in the tax year 1976 -77 the Respondents assert that the further election has to have been made after 6 April 1976 and before 5 April 1977. 
13.	Mrs McLaggan is convinced that she did not make a declaration in this period and in respect of this period she relies solely on her memory. She has a memory of a phone call but this was not made until 1979. We find, on balance, that her memory as to what she signed or did not sign, over 30 years ago, cannot be relied on. We also find that whatever she was told in a phone call in 1979 cannot have influenced whether the NAAFI had authority to deduct reduced rate contributions in 1976 -77.
14.	The Tribunal gave careful thought as to whether the absence of an entry on the RF1 could show that an election was not made at this time. We found on balance that this lack of an entry did not, by itself, show an error by the Respondents. A computer record had been started for Mrs McLaggan and not all entries were made on both systems after this date.
15.	On balance we find that it would not have been possible for the NAAFI to have obtained authority from the Respondents  to deduct reduced rate contributions for Mrs McLaggan without a CF380 certificate. The procedure for obtaining a CF380 involved official check boxes being completed by the Respondents and on balance we find that, if there had not been a paper copy of a CF9 in existence at the time, then the Respondents would not have issued a CF380 to the NAAFI. We consider that it is likely that in 1976 the NAAFI still expected that the wives of serving men would want to pay a reduced rate of contributions and that the NAAFI then arranged for the necessary signatures on the CF9. We could fully comprehend that Mrs McLaggan would not remember this. Making an election in the United Kingdom for the first time in 1974 may have been a memorable event because it involved an appointment at a social security office. In 1976 in Germany it is possible that all forms were completed on the base.
16.	Mrs McLaggan gave oral evidence that she ceased to work for the NAAFI in Germany in June 1977 as Mr McLaggan was shortly to be sent to Gibraltar. She did not work again until after August 1979 when Mr McLaggan was located back in Great Britain and she started to work for the NAAFI again. 
17.	At this point Mrs McLaggan has a memory of a phone call being made by her about her contributions. There is disagreement between Mrs McLaggan and the Respondents as to who exactly she may have been speaking to at this time. The Tribunal, however, were concerned as to why she was making the call at all. She said it was because her boss had told her to check with the Respondents as to why she was paying so much in contributions. This indicates to us that the NAAFI still hoped in 1979 that someone who had previously paid reduced contributions would still be able to pay reduced rate contributions. If the NAAFI and Mrs McLaggan had been expecting that she should pay full contributions, then there would have been no need for a phone call at all.
18.	We accept that Mrs McLaggan made the enquiry in 1979 and that this led Mrs McLaggan to believe that she could, from then on, only pay full rate contributions.  She did not however check all her subsequent pay advices to see that this had been done. Whilst we can see that most people would not check what amount of National Insurance contributions they were paying, Mrs McLaggan had already done so when she thought they were high. We would have thought that a reduction in their amount might have been noticed, more readily, by her.
19.	Mrs McLaggan worked for the NAAFI from August 1979 to 19 January 1980 and paid full rate contributions whilst working there. She then went to work for the Ministry of Defence (MOD) who only deducted reduced rate contributions. How did the MOD get authority to deduct reduced rate contributions? We find that the MOD could only have obtained the proper authority by getting Mrs McLaggan to sign the application for a certificate. Mrs McLaggan continued to work for the MOD in Great Britain until she moved to Germany in August 1982. From 1982 onwards she continued to be paid by the BAOR (British Army of the Rhine) until the 1985-86 tax year. We find that either the certificate of election obtained by the MOD was transferred from the MOD to the pay office of BAOR or the BAOR got Mrs McLaggan to sign an application for a further certificate of election.
20.	 We also find it is highly likely that Mrs McLaggan had signed a similar application whilst working for the NAAFI between August 1979 and January 1980 but the certificate was not sent to the NAAFI before she left them. In the absence of a certificate the NAAFI were obliged under the regulations to deduct full rate contributions and did so. When the Respondents were informed of this ie when they received the P14 sent to them sometime after Mrs McLaggan ceased working for the NAAFI, the procedure for sending a refund was started by the Respondents. We find, on balance, that the refund was encashed. Mr and Mrs McLaggan both deny that they put the refund into Mrs McLaggan’s account but we doubt that anyone could say for certain – without keeping bank statements that far back – what sums they paid or received from official bodies. It was only for £27.18 and even allowing for inflation we do not find it was a memorable amount.
21.	In respect of the phone call made in 1979 we can understand that the information Mrs McLaggan was given made her believe that she could no longer pay the reduced rate of contributions. From that she has convinced herself that she cannot have made a married woman’s election after her marriage to Mr McLaggan. We find however that the information given to her in that phone call was not based on the full facts appertaining to her.
22.	Mrs McLaggan has asked in some of her letters why her election, if she had made one, had not been cancelled when she did not work for two years between April 1977 and April 1979. The regulation which brought in the rule that an election lapsed if there were two years with no contributions, only came into force on 11 May 1977 and so Mrs McLaggan did not have two non paying years after that date.
23.	We can see that this has been a difficult case for Mrs McLaggan and she is concerned that anyone would think she had been trying to lie or mislead. We make no such finding. We find that she tried to remember as best she could and gave her evidence in a spirited and open manner. Regrettably she has not been able to produce any explanation as to how the history of her contributions from 1976 to 1988 could have been as they were without a married woman’s election being made in the tax year 1976 -77.
24.	 On the totality of the evidence before us we find that it is more likely that not that, between 6.April 1976 and 5 April 1977, Mrs McLaggan made an election to pay married woman’s reduced rate contributions.  This election remained in force until 5 April 1988 and she was therefore liable to pay only reduced rate contributions between 6 April 1976 and 5 April 1988. We therefore dismiss the appeal.
25.	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.

         BARBARA J KING
TRIBUNAL JUDGE 

RELEASE DATE: 5 July 2010