HM Revenue and Customs v Fenton

Refunds of voluntary national insurance contributions are available only on the statutory grounds provided by the governing legislation. Under Regulation 52(9) of the Social Security Contributions Regulations 2001, an error must have been made at the time of payment and relate to a past or present matter. A later change in the law, or a subsequent discovery that contributions are no longer needed for one benefit, does not retrospectively make the original payment an error. Where contributions fall outside the provisions governing errors and precluded class 3 contributions, HMRC has no general power to refund them.

Mr Fenton paid voluntary class 3 national insurance contributions for the tax years 2003–04 to 2005–06. He sought repayment after reforms reduced the number of qualifying years required for a full basic state pension. HMRC rejected the claim, but the General Commissioners upheld it on the apparent basis that HMRC had not shown that the contributions enhanced his entitlement to bereavement allowance.

HMRC appealed by way of case stated under Regulation 22 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994. The central issue was whether the Commissioners had identified a lawful basis for repayment apart from payment in error.

1. The appeal was allowed. The General Commissioners had erred in law in concluding that Mr Fenton was entitled to repayment.

2. Regulation 52(9) of the Social Security Contributions Regulations 2001 defines error exhaustively. The error must have been made when the contribution was paid and must concern a past or present matter. Mr Fenton made no such error. At the time of payment, 44 qualifying years were required for a man to secure the full basic state pension, and his payments were made for that purpose.

3. The later reform proposals and the subsequent enactment of the Pensions Act 2007 did not alter the character of the earlier payments. The possibility that the contributions became unnecessary for the basic state pension therefore supplied no ground for repayment.

4. The statutory scheme was comprehensive. Repayment could arise where contributions were made in error under Regulation 52, or where they were precluded class 3 contributions under section 14 of the Social Security Contributions and Benefits Act 1992 and Regulation 49 of the 2001 Regulations. The contributions in issue fell within neither category. HMRC had no power to create an additional refund ground, even if the payments did not in fact enhance entitlement to bereavement allowance.

5. The question stated by the Commissioners was amended under CPR 52 PD 18.50. The correct question was whether any basis other than error entitled Mr Fenton to repayment. The answer was no.

• General Commissioners: by decision dated 24 March 2009, upheld Mr Fenton’s claim for repayment of class 3 contributions.
• High Court (Chancery Division): allowed HMRC’s appeal by way of case stated and amended the question of law. No statutory basis for repayment existed.