Gordon and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 June 2018 |
| Neutral Citation | [2018] UKFTT 307 (TC) |
| Date | 14 June 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0307 (TC)
Judge Sarah Falk, Toby Simon
Mr Gordon appeared in person
Sarabjit Singh QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Registered pension schemes – Whether requirements for discovery assessments met – No because discoveries stale – Whether transfers gave rise to unauthorised payments charges and surcharges or were recognised transfers to a qualifying recognised overseas pension scheme – No, unauthorised payments made – Whether surcharges not just and reasonable – Whether Mr Hills was careless for TMA 1970, s. 36 and FA 2007, Sch. 24 purposes.
FA 2007, Sch. 24 – FA 2004, s. 269 – Overseas Pension Schemes and Recognised Overseas Pension Schemes) Regulations 2006 (SI 2006/206) – R (Gibson) v R & C Commrs – R (on the application of Jimenez) v First Tier Tribunal (Tax Chamber) [2017] BTC 35 – EC Commission v Italy (Case C-129/00) [2003] ECR I-14637 – TMA 1970, s. 29 – T. Haythornthwaite and Sons, Ltd vKelly (HMIT) (1927) 11 TC 657 – O'Mara [2017] TC 05609 – Cenlon Finance Co Ltd v Ellwood (HMIT) (1962) 40 TC 176 – R & C Commrs v Charlton [2013] BTC 1,634 – Burgess; Brimheath Developments Ltd v R & C Commrs [2015] BTC 533 – Monaghan [2018] TC 06408 – Registered Pension Schemes (Accounting and Assessment) Regulations 2005, SI 2005/3454 – Clark [2017] TC 05856 – R & C Commrs v Tooth [2018] BTC 505 – Honig v Sarsfield (HMIT) [1986] BTC 205 – TMA 1970, s. 36 – Anderson [2016] TC 05092 – Cooke [2018] TC 06239 – TFEU, art. 63 – Clark [2016] TC 05366 – Danvers v R & C Commrs [2017] BTC 502.
The appellant concerns HMRC's raising of discovery assessments under TMA 1970, s. 29 in relation to a pension unauthorised payment. The appeals were allowed on the basis that the assessments were not validly made under TMA 1970, s. 29.
The appeals concerned discovery assessments in respect of transfers made from registered pension schemes to a Qualifying Recognised Overseas Pension Scheme (QROPS) in the tax year 2009–10. HMRC contended that the transfers gave rise to unauthorised payments charges and surcharges on each of the appellants because the QROPS was not a qualifying scheme.
HMRC applied to strike out parts of the appeals, which the Tribunal did although leaving it open for the appellants to argue that:
- The QROPS was qualifying;
- It was not just and reasonable to impose the surcharges; and
- to raise an EU law-based challenge.
Two Appellants contended that there had not been a discovery within TMA 1970, s. 29 because HMRC would have learnt about the transfers from the transferring schemes by 31 January 2011 and an assessment was not raised until 31 March 2014. One Appellant relied on TMA 1970, s. 29(2) (prevailing practice at that time) preventing HMRC from raising an assessment, or alternatively on one or both of the conditions in TMA 1970, s. 29(3) (careless or deliberate act or officer ceased to be entitled to enquire) not being met.
The First-tier Tribunal (FTT) considered whether discovery assessments had been made sufficiently promptly after the relevant discoveries were made. HMRC contended that there was no staleness in the assessments and that the relevant discovery could only be that there was an unauthorised transfer. HMRC contended that there was no evidence the conclusion had been reached earlier than when HMRC told each of the appellants that they had reached that conclusion.
The FTT found that HMRC's approach paid insufficient attention to the fact that the burden is on HMRC to make a positive case that the requirements of TMA 1970, s. 29 are met. HMRC had identified an issue with the QROPS by 2010 and therefore needed to consider why no assessments were issued until March 2014.
The FTT considered that the delay issuing assessments might be explained by delays in deciding whether, following the Gibson judicial review litigation, HMRC should or should not exercise their collection and management powers to pursue the appellants. The FTT did not feel that decision-making process were relevant to TMA 1970, s. 29(1).
Correspondence dated 26 March 2012 provided by HMRC in relation to one Appellant included a statement that the transfer was an unauthorised payment, and HMRC corrected his return on the basis of an obvious error. HMRC explained this further in a letter dated 2 May 2012. That letter stated that HMRC had established that QROPS was not qualifying and that the QROPS status had been revoked, which happened in 2010.
The FTT concluded that HMRC must have decided the pension was not a QROPS and that the transfers to each of the appellants amounted to unauthorised payments, by early 2012 at the latest. The appeals were allowed on the basis that the assessments were not validly made under TMA 1970, s. 29. This also had the impact of preventing the unauthorised payments surcharge although a number of interesting points were commented on:
- The Appellants had relied upon a letter dated 18 August 2008 from HMRC to the provider accepting it was a QROPS. The appellants had no way of checking whether it was a QROPS apart from that letter. The appellants relied on the expertise and due diligence of the transferring schemes. There was no requirement prior to SI/2012/884 a UK Scheme obtain confirmation from a member that they would be responsible for any unauthorised payment.
- HMRC sought to rely on guidance which was published in 2011 about the purpose of QROPS schemes being limited to individuals taking their pension savings with them to their new country of residence.
- HMRC had accepted the transferring schemes had suffered no sanctions because they made the transfers in good faith. However, HMRC had not accepted that the appellants acted in good faith. If the Appellants had acted in good faith, then HMRC practice would normally mean that the surcharge would be discharged. HMRC's position was that the surcharges should not be discharged because the appellants had abused the system to cash in their pensions, and these were blatant cases rather than errors in good faith. It was concluded that, other than in one case, HMRC's decision not to discharge the surcharges was correct.
- Three of the Appellants were considerably under retirement age and they should have questioned why it was possible to cash in their pension funds. The FTT considered that they should have considered taking advice from an independent adviser. The level of the fees charged for organising essentially two cash transfers was another element that should have created pause for thought, as should the confidentiality and non-disclosure provisions in the engagement letter. The FTT found that the effect of the arrangements was to extract money from pension funds in a way contrary to the scheme of the legislation and the Appellants had not shown it would not be just and reasonable for a surcharge to be imposed.
- The FTT concluded that it would not be just and reasonable for the one Appellant who was of retirement age to be liable to the unauthorised payments surcharge, and accordingly if the assessment had been valid the FTT would have granted the application to discharge it.
The case is not only a useful reminder of the requirement for “newness” within TMA 1970, s. 29 assessments but also contains some useful consideration for advisers handling enquiries relating to unauthorised payments.
[1] These appeals all relate to discovery assessments made by HMRC on the appellants in respect of transfers made from registered pension schemes to the Wenns International Pension Scheme (“Wenns”) in the tax year 2009–10. HMRC claims that the transfers gave rise to unauthorised payments charges and unauthorised payments surcharges on each of the appellants under s 208 and s 209 Finance Act 2004 (“FA 2004”) because Wenns was not a “qualifying recognised overseas pension scheme” (“QROPS”). In essence, HMRC relies on the fact that all four appellants obtained the full value of their pension funds, less fees, shortly after the transfer to Wenns. Each appellant appeals against both the unauthorised payments charge and surcharge levied on him. Mr Hills' appeal also relates to a penalty for careless inaccuracy in his tax return for 2009–10 under Schedule 24 to the Finance Act 2007 (“FA 2007”), in respect of the omission of any reference to the transfer.
[2] On 11 April 2016 HMRC applied to strike out parts of the appeals on the grounds that the appellants were making public law arguments that the Tribunal had no jurisdiction to consider. In a decision released on 7 February 2017 the Tribunal struck out the appeals to the extent that the appellants argued that it would be unfair for HMRC to impose the charges, but left it open to the appellants to argue that Wenns was in fact a QROPS, that it was not just and reasonable to impose the surcharges, and to raise an EU law based challenge.
[3] Mr Connell, Mr Martino and Mr Hills did not attend the hearing before us, and were not represented. We were satisfied that they had been notified of the hearing and that it was in the interests of justice to proceed. In reaching our decision we took account of revised grounds of appeal served by Mr Connell on 20 March 2017, an “outline of case and witness statement” served by Mr Martino on 28 September 2017 and a further skeleton argument served by him on 24 April 2018, and a skeleton argument served by Mr Hills on 7 August 2017.
[4] A further preliminary point is that s 268 FA 2004 permits an application to be made to HMRC to discharge a liability to the unauthorised payments surcharge on the basis that it would not be just and reasonable to impose it. If HMRC refuses to do so then an appeal can be made to the Tribunal under s 269. In the case of Mr Connell, Mr Hills and Mr Martino such applications were clearly made or accepted by HMRC as having been made, and were in each case refused, and their appeals to the Tribunal clearly extended to that refusal. In...
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...to be acceptable but the Upper Tribunal said that a period of eighteen months would have been too long (see paragraph [57]); in Gordon [2018] TC 06537 (Gordon), a delay of three years, or even two years, had been found to be too long (see paragraph [126]); and in Beagles, a delay of two and......