The case concerned John McKinnon who lived in the UK until September 1980, when at the age of 25 he left to live and work in Italy. He returned to the UK temporarily in the summers of 1981 and 1982 to work in a language school, when he also claimed unemployment benefit, but thereafter he worked only in Italy. He was initially employed in Italy but became self employed in June 1991.[John McKinnon and Her Majesty’s Commissioners for Revenue and Customs, [2016] UKFTT 0667 TC0 5393].

The regulations permit the voluntary payment of Class 2 or Class 3 25 NICs for periods where the contributor is outside the UK, provided certain conditions are fulfilled regarding prior residence or contribution history.

Ordinarily, contributions must be paid within the period specified, which in this case is the period ending six years after the end of the year in question.  However, the rules allow for a period of extension if the failure to pay is attributable to the contributor’s ignorance or error; and that ignorance or error was not the result of the contributor’s failure to exercise due care and diligence.

McKinnon, who had worked in the UK for about three years before moving abroad, found out at a later date about the possibility of paying voluntary NICs and under the normal rules he was allowed to make voluntary contributions for 1996–97 onwards. HMRC then refused to allow him to make voluntary contributions for earlier periods, on the grounds that the mistake was down to his failure to exercise due care and diligence.

For his part McKinnon, who appeared in person at the FTT, argued this was not the case, pointing out that he had voluntarily contacted the Inland Revenue in 1982 to inform them that he was living and working in Italy and had sent them payslips.

When he left the UK he had no experience of being self-employed, his knowledge of NICs was very superficial and he thought the Inland Revenue were responsible for NICs and that the Department of Health and Social Security (DHSS) was only relevant for matters such as unemployment benefit, which he claimed during his temporary return visits in 1981 and 1982, he said.

In addition, he said he had relied heavily on his father for advice and given that his father was the head of pensions and salaries at a large UK company, it was reasonable to rely on that advice and not to seek other advice. This was the case with regard to the advice from his father than he should take out endowment policies in the early 1990s, and the fact that he also took other professional advice from firms in Italy showed the level of care and diligence he exercised.

If he had been alerted by any of his advisers to the possibility of making modest voluntary contributions of the order of £250 a year to secure a State pension income of around £6,000 he would definitely have taken up the opportunity rather than rely on expensive endowment policies. But he never imagined the possibility of that opportunity being available. The reaction that he should have asked was not acceptable because it assumed ‘an unusual level of imagination’.

McKinnon also sought to argue that he was not alone in his ignorance, and more should have been done to promote the opportunity of paying voluntary NICs.

The FTT said it did not find its decision a straightforward one, but concluded that McKinnon had not shown that his ignorance or error was not due to a failure to exercise due care and diligence.

In particular the FTT noted that he clearly knew of the existence of the NICs system, the concept of contributory benefits and the DHSS. It did not accept it was reasonable, as he was an educated person, to have assumed that the Inland Revenue dealt with all NICs matters and that contacting the Inland Revenue sufficed. 

The tribunal heard that McKinnon did not contact the DHSS or its successor the Department of Social Security about the fact that he had left the UK or to provide an Italian address. Had he done so, then he would have been sent two leaflets, NI38 and SA29, both of which contained sections covering the possibility of paying NICs voluntarily whilst abroad. As it was, the only address the DHSS had on record was the appellant’s parents’ address in England, from which they had moved by January 1983.

In the contact McKinnon had with the Inland Revenue, his father, his Italian employer and professional firms in Italy he did not raise any a particular query in respect of NICs or his state pension position. His reliance on his father was somewhat passive and did not go quite as far as statute required.

The FTT also felt that it was clear that the concept of due care and diligence in most cases required some kind of positive step to be taken to make enquiries. For all these reasons, it dismissed the appeal.

CCH tax writer said: ‘This case provides a useful reminder that paying voluntary NICs can be useful in protecting a person’s entitlement to some state benefits.

‘It also highlights the fact that based on the Court of Appeal’s decision in R & C Commrs v Kearney[2010 BTC 887], when deciding whether reliance on advice from another person can amount to exercising due care and diligence the test to be applied is a strict one.’

John McKinnon and Her Majesty’s Commissioners for Revenue and Customs, [2016] UKFTT 0667 TC0 5393 is here.