National insurance contribution reversal for an alleged negligent director
FIRST TIER TRIBUNAL CASE
ANTHONY PETER BROUGHTON-HEAD Appellant
– and –
THE COMMISSIONERS FOR HMRC Respondents
The Tribunal determined the appeal on 6 February 2017
Negligent director – balancing of evidence – accruing national insurance years for pension purposes – reinstating contribution years.
Mr Broughton-Head appealed against the decision of HMRC in relation to the payment or non-payment of Class 1 National Insurance Contributions (NICs) between 1985 and 1991. The appeal related to the tax years 1986 to 1989 as they were important to the appellant in respect of his pension.
The appeal was against a decision which stated the the taxpayer had paid nil national insurance contributions during the tax years 1985 to 1991 and he was accused of being a negligent director.
The Social Security (Contributions) Regulations 1979 makes provision for the treatment for the purposes of contributory benefit of late paid or
unpaid Class 1 contributions. Where the late payment or failure in making payment is shown not to be attributable to the negligence on the part of the primary contributor, the primary contribution is to be treated as duly paid.
The appeal was against the previous decision that the appellant was a negligent director. He was the director of a company called Broughton- Head Timber Ltd (Timber), which was wound up on 19 January 1994.
The Insolvency Section of HMRC investigated matters and concluded that he was a negligent director and that no contributions had been paid for the tax years 1986/87, 1987/88 and 1988/89. The appellant’s contributions for those tax years were removed from his record. Case details regarding the contributions were not available.
The appellant requested HMRC in September 2014 to reverse the removal of the contributions from his national insurance records, which HMRC refused to do. They stated the Insolvency department would have solid grounds for removing the contributions.
He also stated that he employed an accountant and was perplexed as to why he was deemed to be a negligent director for the 3 out of 6 years when National insurance was not paid
In a similar case, Tracy v HMRC , which concerned the nation insurance records of an individual who was a director of several companies. In that case, the tribunal observed among other issues:
a) whilst insolvency allows the possibility of negligence, it does not require such a conclusion
b) while it could be accepted that someone (from HMRC) thought the appellant was negligent, that was not enough for the tribunal to conclude that the appellant was negligent
c) absence of evidence that HMRC was wrong did not prove they were right.
That led the tribunal to conclude that the appellant was not a negligent director in relation to the non payment of national insurance contributions by two of the companies in the period in which they became insolvent
The tribunal in Mr Broughton-Head’s case, agreed with the findings in Tracy. Although there were records that the director had been a negligent director in the past, it had to be balanced with the evidence he wasn’t.
The tribunal further stated that as found in the case of Ophelia , which apply to both parties, the negligence claim by both parties cancel each other out. The fact that HMRC cannot be proven to be wrong does not mean they must be right and that the appellant was a negligent director.
The tribunal allowed the appeal and stated the national insurance contributions for the 3 tax years for Mr Broughton-Head should be restored.