Accountant blamed for client's NIC oversight

A self-employed man who didn’t pay national insurance contributions for 17 years wasn’t to blame because of poor advice from his accountant, a tribunal has ruled.

The first-tier tribunal ruled in Murphy v HMRC  [2014] UKFTT 734 (TC) that although Sean Murphy had been registered as self-employed with HMRC since 1995 he had not paid any Class 2 National Insurance contributions until 2012 because he had not told the then Department of Social Security of his self-employment.

Murphy had relied on his accountant to register his self-employment, the tribunal heard.

When Murphy tried to pay the arrears he was advised that he could only pay for the period from 9 April 2006 unless he could show that his failure to register and pay was due to his ignorance or error and that the oversight was not due to any failure on his part to exercise due care and diligence.

The tribunal’s decision to allow Murphy’s appeal was guided by a previous decision in a similar tribunal (Dr Jeremy Schonfield vs HMRC, TC/2011/02613).

This tribunal found that before Schonfield appointed his accountant he had “exercised due care and diligence”.

In Murphy’s case, the tribunal heard that he had been recommended an accountant who had gone with him to three interviews with his bank when he was setting up in practice. As well as helping Murphy to obtain approval from his professional body the adviser dealt with all his tax affairs and arranged his registration for VAT.

HMRC accepted that Murphy’s failure to pay Class 2 NICs from the start of his self-employment was due to his ignorance.

Tribunal judge Alastair Rankin followed the Schonfield precentent and ruled that Murphy’s failure to pay Class 2 NICs from was “attributable to his ignorance which was not due to his failure to exercise due care and diligence as he had relied on his accountant to advise him on all aspects of his tax affairs”.

The accountant involved was not named in the decision.

 

 

Comments

.    2 thanks

ireallyshouldkn... | | Permalink

But at no point did HMRC spot self employment and no class 2's?

He would have payed class 4 through his SA returns. 

Reason number 8,042 to just    4 thanks

Brodders | | Permalink

Reason number 8,042 to just change its so that Class 2 NIC is paid through self-assessment!!

johnjenkins's picture

I wonder if

johnjenkins | | Permalink

HMRC can now go back and collect all the arrears. I notice HMRC didn't oppose.

Does he want to pay the    1 thanks

TaxSpud | | Permalink

Does he want to pay the arrears to build up a state pension credit, was that the basis of his appeal or am I missing something?

carnmores's picture

preposterous    1 thanks

carnmores | | Permalink

Class 11 , six year time limit?

lionofludesch's picture

Archaic relic    6 thanks

lionofludesch | | Permalink

Class 2 just needs thoroughly reviewing.  Such a fuss over a few quid a month.  There has to be a better way.

Class 2 NI moved to SA

taxinfo | | Permalink

lionofludesch wrote:
There has to be a better way.
There is.

Or, at least, there will be.

After a condoc process July to October 2013 the 2014 Budget speech stated that the "collection of Class 2 NIC for the self-employed will be moved into self assessment."

http://www.accountingweb.co.uk/article/class-2-nics-moved-sa/555644

 

 

 

 

 

Locutus's picture

Yup, scrap it    1 thanks

Locutus | | Permalink

Just increase Class 4 by a fraction of a percent or (like one of the posters above says), just collect it via self assessment.

It astonishes me that in a time of HMRC budget cuts, no one has bothered to tidy this up.  There must be people working in the Class 2 office up in Newcastle that could be more usefully employed elsewhere within HMRC.

lionofludesch's picture

Agree with locutus

lionofludesch | | Permalink

taxinfo wrote:

lionofludesch wrote:
There has to be a better way.
There is.

Or, at least, there will be.

After a condoc process July to October 2013 the 2014 Budget speech stated that the "collection of Class 2 NIC for the self-employed will be moved into self assessment."

http://www.accountingweb.co.uk/article/class-2-nics-moved-sa/555644

There's an even better way ...........

stevebritgimp's picture

Pointless

stevebritgimp | | Permalink

Accountant blamed - which keeps everyone happy.  Meanwhile HMRC can't tell what is now its own department what is happening.  And yes, consolidate this mess.  Collecting via self assessment is one thing, having this separate calculation is another, although it's cheaper than Class 3.  I had a spell out of work, and it would have been cheaper for me to register as self-employed, do nothing, and pay Class 2.

seems client was found at fault

taxinfo | | Permalink

Interesting to me is the heading "Accountant blamed" yet (at the end) .....

Tribunal judge Alastair Rankin followed the Schonfield precentent and ruled that Murphy’s failure to pay Class 2 NICs from was “attributable to his ignorance

So Mr Rankin did not - apparently - blame the accountant but rather the client's own ignorance.

 

I have a client ,who was

timmypunk | | Permalink

I have a client ,who was informed by her previous Accountant , her Self Assessment was filed ,

We discovered in May , this wasn't the case .

The HMRC refused to accept this as a reason ,

 

Does anyone have details of any case law I can quote to re-appeal

 

 

 

so had the

justsotax | | Permalink

accountant completed the initial cwf1 notification to hmrc (meaningless statements like the accountant being involved in the vat registration do not help....as is the accountant being involved in all of his 'tax' affairs).  Is it possible in view these additional statements, that actually the indiviudal initially registrered himself for s/employment and only involved the accountant at a later point.

stevebritgimp's picture

Ignorance    2 thanks

stevebritgimp | | Permalink

Well, it's not really ignorance, as presumably that is never a good defence in tax situations - is the personal ignorance and reliance on appropriate advice.

HMRC at fault here    1 thanks

Ian McTernan CTA | | Permalink

In my opinion, HMRC are entirely at fault here for not enforcing the debt at a much earlier period.  It all comes down to the lack of a joined up tax system.  HMRC's system should automatically check whether Class 2 is due (ie all self employed without the exception approved), check whether in fact it has been paid and issue a bill with the Tax Return.  Hopefully this farce will become less of a problem when Class 2 is included in the SA Return but no doubt the programmers will figure out a way to screw that up too.

How many practitioners even receive copies of Class 2 demands?  The only time I ever get them is when a client forwards one to me (usually when it is wrong).

abolish it all

mikhael | | Permalink

that is abolish all ni contributions, and base your state pension on tax contribution record (with limits).. but of course the slight of hand will then be seen for what it is  when the basic  tax rate then approachs 30% plus the 20% indirect value (?) added  tax on "after tax" income .. yes we are well and truly soaked.. unless you pay the benefit game

This brings another thought...

EOAKS | | Permalink

Is this just a go at accountants or will it expand to include solicitors. I know of someone (not a client so I cant get involved) whose father appointed a solicitor as executor. When IHT calculated solicitor missed 'gifts out of normal income'  resulting in a large IHT bill.

What does anyone think?

Accountant blamed

rdrtaxwizard | | Permalink

What annoys me is that the accountant has not been named. He/she has looked after a self-employed client all these years and never once thought of asking if the client was paying Class 2!  If the accountant is a member of a professional body, that body would be asking what the accountant does for continuing professional education and protecting the good name of the profession.  If the accountant is unqualified the client only has himself to blame.

Will you be wanting    4 thanks

justsotax | | Permalink

Accountants to check if their clients have paid council tax too - perhaps you should propose that accountants pay their clients tax bills if they are struggling. I await to see the course which advises that you should check that you client is paying class 2 (a very different thing from being responsible for registering him).

Poor HMRC systems    1 thanks

the_Poacher | | Permalink

Three different departments were merged, first NI joined IR and there was no funding to join or consolidate systems. Then C&E joined to create HMRC and again no systems are joined up. CT and ITSA returns don't even ask for clients' VAT numbers. What a shambles

Surely this could have been

gigagirl | | Permalink

Surely this could have been picked up when the acountant talked him through his tax and ni calculation each year before SA was submitted. Or maybe it was, and client just said "yeah, I'm paying that". 

 

hmrc communications

twickers | | Permalink

heard about the illegal immigrant who worked for years (middle europe country national/ eventually part of eu)   paid his taxes /  hmrc one year questioned his return / ..re-a)(ssesed 
etc/   his accountant stuck his tongue in his check and said / he actually owes you nothing
he is an illegal immigrant no right to work/   hmrc reply...that was problem for home office ?

however home office never informed/ chap  continued working paying his tax/ country eventually 
allowed into eu.   no doubt one of the many the home office never knew about

Its a fudge

AndrewV12 | | Permalink

Similar to the above, blame the Accountant, but dont name him and therefore shame him, and we can all move on, why HMRC did not realise he was not paying class 2 NI is beyond me, there must have been so many clues, cannot someone at HMRC join the dots.

SimonLever's picture

Class 2 office!

SimonLever | | Permalink

Locutus wrote:

It astonishes me that in a time of HMRC budget cuts, no one has bothered to tidy this up.  There must be people working in the Class 2 office up in Newcastle that could be more usefully employed elsewhere within HMRC.

 

The people working in the Class 2 office cannot even do their own job properly.

God help us if they are reassigned!

IMHO

mackthefork | | Permalink

This decision is all about making sure the right outcome is got to, which is the client doesn't lose his right to the state pension because he failed to pay a couple of quid a week, I doubt the accountant had much to be blamed for, client could have been paying that from another account easily.

Regards

MtF

I don't know....

WongR | | Permalink

SimonLever wrote:

Locutus wrote:

It astonishes me that in a time of HMRC budget cuts, no one has bothered to tidy this up.  There must be people working in the Class 2 office up in Newcastle that could be more usefully employed elsewhere within HMRC.

 

The people working in the Class 2 office cannot even do their own job properly.

God help us if they are reassigned!

 

I don't know...

If they get re-assigned into tax inspections department - it might help us all a bit given it is clear they are not used to asking questions...