Monaghan
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 March 2018 |
| Neutral Citation | [2018] UKFTT 156 (TC) |
| Date | 22 March 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0156 (TC)
Judge Richard Thomas, Mohammed Farooq
Mrs Susan Monaghan appeared for the appellant
Mr Daniel Baird, Solicitor's Office and Legal Services HMRC, appeared for the respondent
Income tax – Registered pension schemes – Payment to member following transfer of funds consisting of rebate of commission from introducer – Whether unauthorised member payment – No, Danvers [2016] TC 04810 distinguished – Whether assessments valid – No, TMA 1970, s. 29 cannot apply – If valid, discovery would have been stale following R & C Commrs v Tooth [2018] BTC 505 – Appeal allowed.
The First-tier Tribunal found that where no Notice to file a tax return had been given by HMRC and no self-assessment filed by the taxpayer: (1) the legislative language used was inadequate to allow HMRC to assess income tax on an unauthorised member payment under FA 2004 by way of a discovery assessments under TMA 1970, s. 29 and (2) there was no requirement on the member to notify HMRC of chargeability to income tax on an unauthorised member payment under TMA 1970, s. 7.
Mr Andrew Monaghan (the Appellant) began to contribute to a company personal pension scheme in May 1999. In November 2012, when the value of his rights in the scheme was £24,952, the Appellant transferred his rights to a pension scheme, the EP1 Retirement Plan, whose trustee was Fast Pensions Limited and the administrators AC Management and Administration Limited (ACMAL). In December 2012 the Appellant received in his bank account a payment of £2,345 from a company Signpost 4 Ltd. This was equal to 10% of the net value of the funds transferred after a £1,500 transfer fee. For the tax years relevant to this appeal HMRC did not issue a Notice to file a tax return and self-assessment, the Appellant's tax affairs being dealt with wholly under PAYE, his only income being employment income.
HMRC began an investigation into funds administered by ACMAL in November 2012, including the EP1 scheme. Based on the evidence presented to it the Tribunal found that HMRC became aware at some point in 2013 that members of the EP1 scheme had received value, in the form of either a loan of 35% of the fund value or “thank you” payments equal to 10% of that value, from Signpost 4 Ltd but the Tribunal found no evidence of any association between Signpost 4 Ltd and Fast Pensions Limited or ACMAL or that the payment originated from the fund. In February 2017 HMRC raised a discovery assessment under TMA 1970, s. 29 for the income tax on what they regarded as an unauthorised member payment under FA 1994, s. 208 and 209 [assumed the correct reference is FA 2004]. This was initially of an amount equal to 35% of the net value of the Appellant's funds on the date of transfer, but following receipt of information from the Appellant as to the actual amount of the payment, the assessment was reduced to the £2,345 actually received by the Appellant. The Appellant appealed against the assessment.
The Tribunal held that: (1) the amount received by the Appellant was not an unauthorised member payment under FA 2004, s. 160 because there was no evidence that the payment received by the Appellant originated from the fund or that there was any connection between Signpost 4 Ltd and Fast Pensions Ltd or ACMAL, the case was therefore distinguishable from Danvers; (2) even if the amount received by the Appellant was an unauthorised member payment, the assessment under TMA 1970, s. 29 was invalid because it is specifically provided in FA 2004, s. 208(8) that an unauthorised member payment is not to be treated as income for any purposes of the Tax Acts, and TMA 1970, s. 29(1)(a) requires there to be income. In this regard the Tribunal considered SI 2005/3454, the Registered Pension Schemes (Accounting and Assessment) Regulations 2005 which amended s. 29(1)(a) to include a reference to unauthorised member payments under FA 2004, s. 208. However, the Tribunal held that this amendment only applied where the person liable for the charge is a company (reg. 9 when read with reg. 4); (3) even if the payment was an unauthorised member payment and even if the s. 29 assessment was otherwise valid, following R & C Commrs v Tooth the assessment was “stale” as it was issued some 4 years after HMRC first made its “discovery” and was therefore invalid; and (4) even if the payment was an unauthorised member payment, the Appellant had no obligation to notify chargeability under TMA 1970, s. 7 because of the exemption in s. 7(3), any liability under FA 2004, s. 208 not being included in the calculation of a taxpayers total income.
The appeal fell to be allowed.
This appeal was one of two decisions (released on the same date) that concern the validity of discovery assessments under TMA 1970, s. 29 on amounts that do not constitute “income”. This case concerned unauthorised member payments under FA 2004, s. 208 that are specifically precluded from being “income” for the purposes of the Tax Acts, and the other decision, Robertson [2018] TC 06410, concerned the High Income Child Benefit Charge (HICBC), which by its very nature is not a tax on “income”.
In both cases the decision was that discovery assessments under s. 29 were invalid. The two decisions are therefore likely to have continuing significance to taxpayers who have not been issued with a Notice to file a tax return and self-assessment (for example, because their only income is employment income tax under PAYE) and who have an income tax liability that does not arise on “income” (HICBC and unauthorised member payments in these cases). However, it remains to be seen whether, following release of these Tribunal decisions at First-tier level, HMRC practice will change, and one would also imagine that s. 29 may itself be promptly amended by subsequent legislation.
[1] This was an appeal by Mr Andrew Monaghan (“the appellant”) against an assessment for the tax year 2012–13 made on or about 3 February 2017 by an officer of the respondent (“HMRC”). The assessment was said to be made under s 29 Taxes Management Act 1970 (“TMA”) and charged tax of £4,514.46 on what was said to be an unauthorised payment said to have been received by the appellant from a pension scheme of which he was a member.
[2] We had a bundle of papers prepared by HMRC and a witness statement made by Mr Mark Davies, an officer of HMRC who had been in charge of an investigation into the pension scheme to which the appellant had transferred his pension fund. Mr Davies gave oral evidence on which we questioned him.
[3] The appellant also gave evidence.
[4] From the documents in the bundle and from the evidence we heard we find the following facts.
[5] The appellant began to contribute to a company personal pension scheme on 6 May 1999 operated by the Prudential Assurance Co Ltd. As at 28 November 2012 the value of the appellant's rights in the scheme was £24,951.77.
[6] On that day the appellant transferred his rights to a pension scheme, the EP1 Retirement Plan, whose trustee was Fast Pensions Ltd and the administrators AC Management and Administration Ltd (“ACMAL”). The value of the opening fund in that scheme was £23,451.77 reflecting a “member initial pension scheme fee” of £1,500.
[7] Under the terms of the EP1 plan the trustees were to invest “with a view to” a minimum return of 5% net of charges over a 6 year period in underlying assets with a 6 year return.
[8] Because of, it was said, the underlying structure of the assets there was an early redemption penalty of 42% of capital in the first year, reducing by 7% each year.
[9] The annual administration fee was nil.
[10] A “Financial summary” of the Fund put in by the appellant showed as at 7 August 2013 that the gross transfers in from members was £2,797,705.52 and that the funds had been invested in 10 companies all of which appeared to be unquoted. Liquid assets were £5,813.80 cash at bank. The net return for members “to date” was £73,364.50 all of which was received from the 10 companies. No indication was given about the start date for the statement.
[11] A statement given to the appellant by Fast Pensions showed the value of his fund at 30 April 2014 was £24,912.21 and at 28 February 2017 it was £26,929. No contributions had been made to the fund in these periods.
[12] On 12 December 2012 the appellant had received in his bank account a payment of £2,345 from a company Signpost 4 Ltd. This was 10% of the net value of the fund transferred, ie after the £1,500 “transfer” fee.
[13] This company had no ownership or control connection with Fast Pensions.
[14] Mr Davies began an investigation into funds administered by ACMAL in November 2012, including the EP1 scheme.
[15] In 2014 Fast Pensions provided information about the members of its schemes showing the value of the funds transferred and details of the members' addresses and National Insurance numbers and tax references. The appellant was identified from these schedules as having transferred his pension fund to the EP1 plan.
[16] Fast Pension also provided to Mr Davies a schedule of the main organisations who had introduced new members for the scheme, the total of such introducers said by Fast Pensions to number over 200. He exhibited a redacted copy of this schedule showing the name “Sign Post”. He had no evidence of an ownership or control connection between companies with the name Signpost on the one hand and Fast Pensions or ACMAL ion the other.
[17] Although Signpost only featured as an introducer in the schedule supplied by Fast Pensions, Mr Davies also exhibited a specimen of “Signpost Marketing Ltd Terms & Conditions” which showed that that company was not authorised by the FSA to give investment advice; nor able to recommend any Self Invested Personal Pension administrators or pensions products; and that they promoted “alternative investment products” which were not regulated...
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