A special commissioner dismissed an appeal by the taxpayer claiming that he was entitled to pay Class 1 National Insurance contributions (NICs) at the full rate where his employment clearly fulfilled the requirements of s. 30 of the Pensions Act 1975 to qualify as contracted-out employment to which reduced-rate contributions were applicable.

Facts

The taxpayer was born on 12 May 1937 and started paying NICs on 12 May 1952. He was a qualified electrical engineer and worked on construction sites. From 6 April 1985 to 31 March 1991 the taxpayer was employed by Bovis. The staff handbook outlined staff conditions and benefits. Paragraph 1 included a reference to the pension scheme and stated that it was a condition of employment that each employee became a member of the pension fund upon starting permanent full-time employment with the company; the fund was a contributory fund and each employee was required to pay five per cent of his salary to the fund by deduction from his pay; the company would pay the balance of the cost of providing benefits. The company pension scheme had been contracted-out of the earnings-related element of the state pension and a contracting-out certificate under the Pensions Act 1975 was in force.

On 13 March 1985 the taxpayer signed an application for membership of the scheme. With effect from 1 April 1988, there was a bulk transfer of the contributing members of the Bovis Pension Fund to the P & O Pension Scheme, without the consent of the members as was permitted under reg. 32 of the Occupational Pension Schemes (Contracting-out) Regulations 1984.

The taxpayer was made redundant on 31 March 1991 at the age of 53. On 7 June 1991 the P & O Pension Scheme wrote to the taxpayer to say that an immediate retirement pension was payable at an enhanced rate as a result of the redundancy. He decided to draw his pension rather than defer it and had been receiving a pension from the scheme since 1991. After leaving Bovis the taxpayer became self-employed. On 23 April 1991 he applied to the Revenue for a sub-contractor's certificate which was issued by the Revenue valid from May 1991. The taxpayer became 65 on 12 May 2002 and claimed his state retirement pension on 22 April 2002.

At the relevant time, s. 30 of the Pensions Act 1975 provided that the employment of an employed earner in employed earner's employment was contracted-out if the employed earner was under pensionable age, his service qualified him for a guaranteed minimum pension under an occupational pension scheme, the scheme was contracted-out in relation to that employment, and a contracting-out certificate issued by the Occupational Pensions Board was in force. Section 30(3) provided that the existence of a contracting-out certificate was conclusive that the employment was contracted-out employment. The taxpayer appealed against a Revenue decision concerning his liability to NICs, the effect of which was that the taxpayer had paid NICs at the reduced rate applicable to contracted-out employment. The taxpayer appealed because he was of the view that he was entitled to pay contributions at the full rate and not at the reduced rate.

The taxpayer argued there was no valid contracting-out certificate after the transfer of the Bovis scheme in 1988 until 1995 which was four years after he had ceased his employment. He also argued that the 1995 certificate referred to ‘The Peninsular and Oriental Steam’ and there was no such company. He also argued that the 1995 certificate was invalid because it was issued under the Pensions Act 1975 and in 1993 the Pensions Act 1975 had been replaced by the Pensions Schemes Act 1993 which repealed s. 26–52 of the 1975 Act.

Issues

Whether the taxpayer was in contracted-out employment from 6 April 1985 to 31 March 1991; whether, during that period, the taxpayer was liable to and entitled to pay Class 1 NICs at the reduced rate applicable to contracted-out employment or at the full rate.

Decision

The special commissioner (Dr AN Brice) (dismissing the appeal) said that it was not disputed that, at the relevant time, the taxpayer was under pensionable age and that his service qualified him for benefits under an occupational pensions scheme. Moreover the scheme was contracted-out in relation to the taxpayer's employment with Bovis. The contracting-out certificate issued on 1 March 1978 related to employment with Bovis and with other employers listed in a schedule which included Bovis. The contracting-out certificate issued on 2 June 1989 (effective as from 1 April 1988) related to employment with P & O and other employers listed in a schedule which included Bovis. The contracting-out certificate issued in 1995 related to employment with P & O and the employers listed in the schedule, including Bovis. Therefore, if the Bovis and the P & O schemes were contracted-out, then they were contracted-out in relation to the taxpayer's employment with Bovis.

Further, a contracting-out certificate issued by the Occupational Pensions Board was clearly in force from the start of the taxpayer's employment in 1985 until 31 March 1988. From 1 April 1988, the position was not quite so clear. On that date, the P & O scheme changed its name and the members of the Bovis scheme were transferred into the P & O scheme. However, the change of name of the P & O scheme was not notified to the Occupational Pensions Board until 1994. After 1 April 1988 at least three contracting-out certificates were issued.

Section 31(7) of the contracting out regulations provided that ‘except in prescribed circumstances, no contracting-out certificate and no cancellation, variation or surrender of such a certificate shall have effect from a date earlier than that on which the certificate is issued or the cancellation, variation or surrender is made’. Regulation 8 of the contracting-out regulations provided that where the Occupational Pensions Board had determined that an employment should be treated as contracted-out employment they should issue and send to the employer a contracting-out certificate which should state the date from which the certificate was to have effect ‘which may, where the Board consider it appropriate, be earlier than the date on which the certificate is issued, so however that it shall not be earlier than 6 April 1978’.

In the commissioner's view, the provisions of reg. 8 were the ‘prescribed circumstances’ mentioned in s. 31(7) and, so long as the provisions of reg. 8 were complied with, a contracting-out certificate could take effect from a date earlier than the date of its issue so long as it did not take effect earlier than 6 April 1978. Thus the certificate of 2 June 1989 was in force from 1 April 1988 and it related to the P & O scheme. That was the correct name of the scheme of which the taxpayer was a member and so there was a certificate in force from 1 April 1988. The fact that the old name of the pension scheme was used rather than the new name did not invalidate the certificate because the error could be cured by rectification which was done by the certificate of October 1995 which was also effective from 1 April 1988.

In all the circumstances, the taxpayer was in contracted-out employment from 6 April 1985 to 31 March 1991. Section 30(3) of the Pensions Act 1975 provided that the existence of a contracting-out certificate was conclusive that the employment was contracted-out employment and so the conclusion that contracting-out certificates were in force also led to the conclusion that the taxpayer was in contracted-out employment from 1985 to 1991.

Section 1(6) of the 1975 Act provided that no person was entitled to pay Class 1 NICs other than those which he was liable to pay. As the taxpayer was in contracted-out employment, it followed that he was liable to pay Class 1 NICs at the reduced rate applicable to contracted-out employment and was not entitled to pay contributions at the full rate.

(2006) Sp C 567.
Decision released 30 October 2006.