Revenue and Customs Commissioners v Sippchoice Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 March 2017 |
| Neutral Citation | [2017] UKUT 87 (TCC) |
| Date | 01 March 2017 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2017] UKUT 0087 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Roger Berner, Judge Jonathan Cannan
Laura Poots, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Rebecca Murray appeared for the respondent
Income tax – Scheme sanction charges – Finance Act 2004 (FA 2004), s. 269 – Whether scheme administrator reasonably believed that no unauthorised payment was being made – FA 2004, s. 268(7)(a) – Whether First-tier Tribunal (FTT) erred in its interpretation and application of the test of reasonableness – Mobilx Ltd (in administration) v R & C Commrs [2010] BVC 638 considered – Whether FTT made an error of law in its findings of fact – Edwards (HMIT) v Bairstow (1955) 36 TC 207.
The Upper Tribunal dismissed HMRC's appeal against the decision of the FTT (in Sippchoice Ltd [2016] TC 05217), upholding the FTT's finding that the scheme administrator's liability to the scheme sanction charge should be discharged.
Following an unsolicited approach by an individual previously unknown to them, Sippchoice Ltd (the administrators of the Sippchoice Bespoke SIPP (SB SIPP)) invested funds in Imperium Enterprises Ltd (Imperium), understood by Sippchoice to be engaged in property investment. Sippchoice had completed an initial verification process, which included confirmation that Imperium would not be making loans to SIPP members. Following an email from a scheme member indicating that he had transferred his existing pension fund to the SB SIPP solely in order to access a loan, Sippchoice contacted HMRC and it was established that Imperium was in fact operating a scheme to enable benefits to be accessed without a charge to tax under the unauthorised payments regime. HMRC sought to impose a scheme sanction charge on Sippchoice, as the scheme administrator, and Sippchoice in turn applied to HMRC for discharge of its liability to the charge under FA 2004, s. 268(5). HMRC refused the application, and the FTT allowed Sippchoice's appeal against that decision. HMRC appealed, originally on three grounds, later reduced to the following two:
- first, that the FTT had erred in law in interpreting and applying the reasonable belief test in FA 2004, s. 268(7)(a); and
- second, in relation to the later part of the period in which the scheme had operated, that the FTT's finding was inconsistent with the documentary evidence.
On the first point, the grounds for an appeal under s. 268(5) were that: (i) the scheme administrator must have formed a belief that the unauthorised payment was not a scheme chargeable payment and (ii) that belief must be reasonably held (s. 268(7)(a)). (It was accepted by both parties that a purposive approach should be adopted so that point (i) could be regarded as satisfied in cases such as that of Sippchoice where the scheme administrator was in fact unaware that an unauthorised payment had been made.) HMRC challenged the FTT's conclusion in relation to point (ii), on the basis that the FTT had erroneously applied the principles established in a VAT case (Mobilx Ltd (in administration) v R & C Commrs [2010] BVC 638), that turned on whether or not a person “should have known” that there was a connection to fraud (i.e. where the only reasonable explanation of the transaction was a connection to fraud), which is not the same as the question posed by s. 268(7)(a), namely: was a belief reasonable? Although the Upper Tribunal (UT) agreed that the Mobilx test was not appropriate, they considered the FTT's decision as a whole, and found that they had not in fact reached their decision by reference to Mobilx, but had instead concluded on the evidence before them that Sippchoice's belief was reasonable.
In relation to the second point, HMRC's argument was that, at a meeting that took place between Sippchoice and Imperium, Sippchoice had asked whether or not loans were being made by an unconnected third party and that as this indicated their awareness of this possibility the FTT had erred in law in finding, at para. 77 of their judgment, that, for periods subsequent to the meeting, “the evidence does not disclose circumstances which would have indicated to [Sippchoice] that a more sophisticated scheme was being operated”. However, the UT considered nevertheless that the FTT's finding was one that it was entitled to make on the evidence, because the evidence giving rise to Sippchoice's concerns only pointed to the possibility that such a scheme might be in operation, not that it was in fact being operated.
This case is perhaps unusual in that the appellant (the pension scheme administrator) was not aware of the scheme to access pension funds by way of loan that was being operated. Nevertheless, it provides a useful examination of the circumstances in which a belief is likely to be regarded as “reasonably held”.
[1] This is the appeal of HMRC from the decision of the First-tier Tribunal (“FTT”) (Judge John Walters QC and Mr Charles Baker FCA) by which the FTT allowed the appeal of Sippchoice Limited (“Sippchoice”) against the decision of HMRC to refuse to discharge the liability of Sippchoice to scheme sanction charges to which Sippchoice had, or was assumed to have, become liable under s 239 of the Finance Act 2004 (“FA 2004”), and granted Sippchoice's application to discharge that liability.
[2] In the case of registered pension schemes, only certain payments to or in respect of members of the scheme are authorised. Those are set out in s 164 FA 2004, the detail of which is not material for the purpose of this appeal. Any payment to or in respect of a member which is not authorised by s 164 is an unauthorised member payment, as is anything which is treated as an unauthorised payment to or in respect of a member (s 160 FA 2004).
[3] If an unauthorised member payment is made by a pension scheme, s 208 FA 2004 imposes a charge to income tax, known as the unauthorised payments charge, on the person to or in respect of whom the payment has been made. The rate of that charge is 40% of the unauthorised payment.
[4] With certain exemptions, none of which is relevant to this appeal, an unauthorised payment is a “scheme chargeable payment” (s 241 FA 2004).
[5] Section 239 FA 2004 imposes a charge to income tax, a “scheme sanction charge”, where in any tax year one or more scheme chargeable payments are made by a registered pension scheme. The person liable to a scheme sanction charge is the scheme administrator. The amount of the charge is provided by s 240; it is 40% of the scheme chargeable payment, but there is scope for reduction by up to 25% (thus reducing the scheme sanction charge to 15%) if the tax charged under s 208 has been paid. In those circumstances, the aggregate tax charged on the unauthorised payment would be at the rate of 55%.
[6] The only condition for the application of the scheme sanction charge under s 239 is that a scheme chargeable payment has been made. But s 268 FA 2004 makes provision for possible relief from that liability. So far as is material to this appeal, s 268 provides:
(1) This section applies where–
- …
- (b) the scheme administrator of a registered pension scheme is liable to the scheme sanction charge in respect of a scheme chargeable payment.
…
(5) The scheme administrator may apply to the Inland Revenue for the discharge of the scheme administrator's liability to the scheme sanction charge in respect of a scheme chargeable payment on the ground mentioned in subsection … (7).
…
(7) In any other case, the ground is that–
- the scheme administrator reasonably believed that the unauthorised payment was not a scheme chargeable payment, and
- in all the circumstances of the case, it would not be just and reasonable for the scheme administrator to be liable to the scheme sanction charge in respect of the unauthorised payment.
…
(8) On receiving an application under subsection (5), the Inland Revenue must decide whether to discharge the scheme administrator's liability to the scheme sanction charge in respect of the unauthorised payment.
(9) The Inland Revenue must notify the applicant of the decision on an application under this section.
(10) Regulations made by the Board of Inland Revenue may make provision supplementing this section; and the regulations may in particular make provision as to the time limits for the making of an application.
[7] An appeal against a refusal of an application under s 268(5) lies to the FTT under s 269 FA 2004. On such an appeal the tribunal must consider whether the applicant's liability to the scheme sanction charge ought to have been discharged. If the tribunal does not consider that to have been the case, it must dismiss the appeal. If it does consider that the applicant's liability ought to have been discharged, the tribunal must grant the application.
[8] The FTT (Judge Walters QC) refused an application by HMRC for permission to appeal, but permission was given by this Tribunal (Judge Sinfield). There were originally three grounds of appeal:
- Ground 1. The FTT erred in law in interpreting and applying the reasonable belief test at s 268(7)(a) FA 2004.
- Ground 2. The FTT erred in law in its interpretation of s 268(7)(b) FA 2004, namely the just and reasonable test.
- Ground 3. In relation to the period from 7 July 2011 to 4 August 2011, the FTT erred as a matter of law in finding, at [77], that the evidence does not disclose circumstances which would have indicated to them that a more sophisticated scheme was being operated. It is submitted that the FTT's conclusion in this regard cannot be justified by, and is inconsistent with, the primary facts.
[9] Shortly prior to the hearing, having served their skeleton argument in the usual way, HMRC sought to introduce a supplemental skeleton argument in relation to Ground 2, and to refer, in support of an argument that Sippchoice would be able to meet the scheme sanction...
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The Commissioners for HM Revenue and Customs v Sippchoice Limited
...[2017] UKUT 0087 (TCC) Appeal number: UT/2016/0188 INCOME TAX – scheme sanction charges – FA 2009 s 269 – whether scheme administrator reasonably believed that no unauthorised payment was being made – s 268(7)(a) – whether FTT erred in its interpretation and application of the test of reaso......