John Mander Pension Trustees Ltd v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lord Carnwath,Lord Sumption,Lord Neuberger,Lord Reed,Lord Hodge |
| Judgment Date | 29 July 2015 |
| Neutral Citation | [2015] UKSC 56 |
| Date | 29 July 2015 |
| Court | Supreme Court |
[2015] UKSC 56
Lord Neuberger, President
Lord Sumption
Lord Reed
Lord Carnwath
Lord Hodge
Appellant
Andrew Thornhill QC
Jeremy Woolf
(Instructed by Ansons LLP)
Respondent
Akash Nawbatt
(Instructed by HMRC Solicitors Office)
Heard on 16 June 2015
Until 2006, pension schemes could be approved by the Inland Revenue (subsequently HM Revenue and Customs). Approved status carried with it advantages in the tax treatment of contributions to the scheme and investments within it, but it also imported restrictions on the form in which benefits were taken. In particular, until recently, benefits had to be taken as income, for example by applying the capital to the purchase of an annuity. The Finance Act 1991 amended the Income and Corporation Taxes Act 1988 so as to provide for the cessation of approval if a scheme ceased to qualify. A practice grew up by which small schemes (typically for the controlling directors of private companies) would contrive a loss of approval with a view to allowing the accumulated fund to be applied free of the restrictions on the form of benefits. To deal with this practice, section 61 of the Finance Act 1995 introduced a tax charge of 40% of the value of the assets of the scheme immediately before the cessation of approval.
The question at issue on this appeal is whether, when approval is withdrawn by a decision of Revenue, the tax charge falls to be assessed in the tax year with effect from which the approval ceased or in the tax year when the Revenue's decision to withdraw approval was notified to the administrator of the scheme. The John Mander Ltd Directors Pension Scheme was approved by the Revenue on 24 September 1987. Its beneficiaries were Mr Mander and his wife. On 5 November 1996 the funds of the scheme were transferred to a new scheme, whose rules were subsequently changed so as to provide for the trustees to make advances to beneficiaries which were not permitted for an approved scheme. On 19 April 2000 the Revenue notified the administrator of the scheme that approval was withdrawn under section 591B(1) of the Income and Corporation Taxes Act 1988 with effect from 5 November 1996. On 27 July 2000, the then administrator was assessed under section 591C of the Act for the current tax year, 2000–2001. Following a change of administrator, a fresh assessment in the same terms was raised against the new administrator on 22 January 2007. The taxpayer appealed against both assessments on the ground that the tax should have been assessed for the tax year 1996–1997 when the scheme ceased to be eligible and when the withdrawal of approval took effect under the terms of the Revenue's notice. This contention was rejected by the First-tier Tribunal (Tax Chamber). Their decision was upheld by the Upper Tribunal (Vos J) [2013] UKUT 51 (TCC); [2013] STC 1453 and subsequently by the Court of Appeal (Moses, Patten and Beatson LJJ) [2013] EWCA Civ 1683; [2014] 1 WLR 2209. They all considered that the tax charge fell to be assessed for the year 2000–2001 when the withdrawal was notified.
The point is of greater significance than this rather technical statement of the issue might suggest. If the taxpayer is right, it may now be too late for the Revenue to raise a fresh assessment for 1996–1997. In some cases, although not this one, it will already have been too late by the time that the revenue learn of the facts leading to the withdrawal of approval. A substantial number of other schemes is affected. This is the lead case of a number of appeals awaiting decision in the First-tier Tribunal.
Section 590 of the Income and Corporation Taxes Act 1988 laid down a number of conditions for the approval of a pension scheme. Section 591 conferred a discretion on the Revenue to approve schemes satisfying certain criteria even if it did not qualify under section 590, but subject to regulations which the Board was empowered to make by section 591(6).
At the relevant times, approval could cease in any of three ways:
(1) Section 591A was in effect a transitional provision relating to schemes which had received discretionary approval under section 591 but ceased to qualify as a result of restrictions subsequently introduced by regulations under section 591(6). Their approval ceased automatically 36 months after the introduction of the regulations if the scheme still failed to comply with them.
(2) Section 591B(1), which was the basis on which the approval of the Mander scheme was withdrawn, provided:
"If in the opinion of the Board the facts concerning any approved scheme or its administration cease to warrant the continuance of their approval of the scheme, they may at any time by notice to the administrator, withdraw their approval on such grounds, and from such date (which shall not be earlier than the date when those facts first ceased to warrant the continuance of their approval or 17 March 1987, whichever is the later), as maybe specified in the notice."
(3) Section 591B(2) provided that where an alteration had been made to a scheme which was neither specifically approved by the Revenue nor generally authorised by regulations, "no approval given by the Board as regards the scheme before the alteration shall apply after the date of the alteration…"
It should be noted that in each case, the approval is lost with effect from a date established by reference to the time when the scheme ceased to qualify for approval. In cases (1) and (3), this is clear from the express terms of the relevant provisions. Where approval is lost under section 591A, it ceases with effect from a date 36 months after regulations came into force under which it no longer qualified for discretionary approval. The period of grace is intended to allow the trustees to modify the scheme so as to qualify under the new regime. Approval is lost only if they fail to do so. Where approval ceases under section 591B(2), it ceases on the date of the alteration to the scheme which caused it no longer to qualify for approval. The relationship between the date when the scheme ceases to qualify and the date when approval ceases is less clear in cases governed by section 591B(1). This is the only case in which the cessation of approval requires any action on the part of the Revenue, as opposed to occurring automatically when the statutory conditions for cessation are satisfied. A notice of withdrawal is required, which will specify an effective date for the withdrawal not earlier than the time when the facts cease to warrant approval. It is, however, clear that the Revenue do not have an unfettered choice of effective date. They must select one which bears a rational relationship to the facts to which they are responding. That will normally be the date when the scheme ceased to qualify for approval. But it may be after that date if in the judgment of the Revenue the circumstances in which the scheme ceased to qualify justify an interval before the withdrawal takes effect. This might happen, for example, if the loss of approval was inadvertent on the part of the trustees or administrator and there was a period of time during which they might reasonably have been expected to rectify the position. Other examples could no doubt be cited.
When approval is lost in any of the three ways contemplated by sections 591A or 591B, a charge to tax is imposed by sections 591C. This provides, so far as relevant:
"591C Cessation of approval: tax on certain schemes
(1) Where an approval of a scheme to which this section applies ceases to have effect …, tax shall be charged in accordance with this section.
(2) The tax shall be charged under Case VI of Schedule D at the rate of 40% on an amount equal to the value of the assets which immediately before the date of the cessation of the approval of the scheme are held for the purposes of the scheme (taking that value as it stands immediately before that date).
(3) Subject to section 591D(4), the person liable for the tax shall be the administrator of the scheme."
Section 591D contains supplementary provisions. For present purposes, only subsection (7) is relevant:
"(7) The reference in section 591C(l) to an approval of a scheme ceasing to have effect is a reference to –
(a) the scheme ceasing to be an approved scheme by virtue of section 591A(2);
(b) the approval of the scheme being withdrawn under section 591B(l);
(c) the approval of the scheme no longer applying by virtue of section 591B(2);
and any reference in section 591C to the date of the cessation of the approval of the scheme shall be construed accordingly."
In respect of what year does the charge to tax arise?
Section 591C does not in terms specify a date at which the tax is chargeable. In principle, it is the date when approval is lost since that is the occasion for the tax charge. But in a case where approval is withdrawn retrospectively, does that mean the date on which it is withdrawn or the date with effect from which it is withdrawn? The Revenue's argument is, in substance, that until the moment when a notice of withdrawal is issued, the scheme remains technically an approved scheme, notwithstanding that it was not entitled to be, and notwithstanding that when approval was withdrawn it was withdrawn retrospectively. In my opinion, however, the correct answer is that the tax charge falls to be assessed for the chargeable period in which the withdrawal of approval took effect in accordance with the terms of the statutory notice.
The starting point is to ask what the tax is being charged upon. That depends on the charging provision. Before us...
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Weekly Tax Update - August 3, 2015
...scheme The Supreme Court has allowed, by a majority, the taxpayer's appeal in the case of John Mander Pension Scheme Trustees Ltd v HMRC [2015] UKSC 56 against tax assessments on the withdrawal of approval for a retirement benefits scheme. The issue concerned the validity of assessments rai......