West
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 June 2019 |
| Neutral Citation | [2019] UKFTT 602 (TC) |
| Date | 04 June 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 602 (TC)
Judge Rupert Jones, Mr Charles Baker FCA
Having heard Mr and Mrs West appeared for the appellant
Moira Browne, Presenting Officer and Litigator of HM Revenue and Customs' Solicitor's Office appeared for the respondents
Income tax – Unauthorised payments – Pension Schemes – Pensions Liberation scheme – FA 2004, s. 160 and 208 – Discovery – TMA 1970, s. 29 – Appeal dismissed.
The First-tier Tribunal (FTT) dismissed a taxpayer's appeal against a discovery assessment issued in relation to an unauthorised payment from a pension scheme.
Mr West (the appellant) and his wife had been the victims of a pension liberation scheme. Under the scheme they were advanced a loan in January 2013 which, unbeknown to them, was essentially part of the appellant's pension fund.
When the appellant submitted his 2012–13 tax return in January 2016 he was unaware of the connection between the loan and his pension fund and did not mention the loan. This was even though in the covering letter requesting the return it said that:
HMRC has become aware that during the year 2012/13 you made changes in the way that your pension fund had been invested. I have reason to believe that a payment has been made to you as result of this transaction, any such payment may be deemed to be an unauthorised payment from your pension scheme.
It was only in November 2016 that the appellant became aware of the link between the transfer of the pension and receipt of the loan, when the Pensions Ombudsman upheld a complaint about maladministration of the appellant's pension scheme.
In March 2017 HMRC issued a discovery assessment under TMA 1970, s. 29 for 40% of the loan advanced.
The appellant appealed against the assessment.
By the time of the hearing the appellant accepted that the loan advanced to him and his wife was from his pension monies. However, the appellant submitted that he and his wife were completely unaware at the time that there was any connection between the pension transfer and the loan they received. They had no knowledge of any pension liberation scheme nor any intention to “liberate” any of the funds from the appellant's pension scheme.
The FTT was satisfied that the loan advance was an unauthorised payment under FA 2004, s. 160, and therefore under s. 208 subject to an unauthorised payments charge of 40%.
The FTT considered that the discovery assessment had been validly issued. This was because:
- the assessment had been issued within the ordinary four year time limit set out in TMA 1970, s. 34;
- the HMRC officer made a subjective discovery of a tax loss in late November 2016 when he received the Pensions Ombudsman's report and this was objectively a reasonable conclusion;
- the discovery was not stale as the assessment was issued four months after the discovery; and
- information was not made available to the hypothetical officer so that the hypothetical officer could reasonably have been expected to be aware of the insufficiency in tax and thus the condition in TMA 1970, s. 29(5) was met.
The Tribunal was however unwilling to accept that the underassessment was brought about carelessly or deliberately by the taxpayer or someone acting on his behalf (the condition in s. 29(4)).
The Tribunal dismissed the appeal.
The FTT noted that this was a “very sad case”, with the appellant and his wife being the “victims of exploitative and untoward behaviour by the promoters and orchestrators of a pension liberation scheme”. They had not benefited from the unauthorised payment and in fact had suffered serious financial consequences, stress and distress because of the payment. While the Tribunal upheld the discovery assessment and recognised that HMRC were required to enforce the law, it invited HMRC to consider whether there was anything they could do to mitigate the consequences of the assessment for the appellant and his wife.
[1] The Appellant appealed against an assessment to tax made by HMRC on 30 March 2017 for £4,660 for the year ending 5 April 2013.
[2] The Tribunal decided that the appeal should be dismissed and the assessment should be confirmed, albeit in the amended sum of £4,460 rather than the original figure of £4,660.
[3] This is a summary of the Tribunal's findings of fact and reasons for decision.
[4] The Tribunal announced its decision at the end of the hearing on 21 May 2019 and HMRC requested that it produce written reasons for its decision. The Tribunal released a summary decision on 3 June 2019.
[5] Subsequent to its release, in late September 2019, the Tribunal has corrected clerical mistakes or other accidental omissions in that decision including amending typographical errors pursuant to its power under rule 37 of the Tribunal Procedure (First-tier tribunal) (Tax Chamber) Rules 2009. The Tribunal has also directed that the decision be published.
[6] HMRC's assessment was made in respect of a loan advanced to the Appellant and his wife, Mrs West, from Blu Funding Corporation Ltd (“Blu Funding”) on 25 January 2013 in the amount of £11,150. HMRC submits that the loan was a payment made in connection with the transfer of the Appellant's pension of around £48,000 to the FP1 Retirement Fund. Therefore, HMRC submit that the payment of the loan was an unauthorised payment for the purposes of the Finance Act 2004 and subject to a charge of 40% income tax.
[7] It was not in issue by the time of the hearing of the appeal, because the Appellant and his wife accepted this, that the loan they received from Blu Funding was from the pension monies he had transferred to Fast Pensions Ltd. At the time of making the appeal they had not accepted there was such a connection. They now accepted that HMRC had proved there was a connection between the Appellant's pension fund transferred from Novartis to Fast Pensions Ltd (“Fast Pensions”) and placed in the FP1 Retirement Fund (as transferred onwards via the administrator, AC Management and Administration Ltd) and that transferred to Blu Funding, part of which was then re-paid to them in a loan from Blu Funding.
[8] Put simply, the Tribunal is satisfied that the Appellant's pension fund with Novartis which had first been transferred to Fast Pensions' FP1 Retirement Fund was then transferred to a third-party company, Blu Funding which finally paid the Appellant and his wife part of the same money, as a loan. Following the three steps in the chain, the loan received by the Appellant was essentially part of his pension fund.
[9] Nonetheless, the essence of the Appellant's case at the hearing was that he and his wife were completely unaware at the time that there was any connection between the pension transfer and the loan they received. They had no knowledge that this would happen and it was not their intention. They had no knowledge of any pension liberation scheme nor intention to “liberate” any of the funds from the Appellant's pension scheme.
[10] The Tribunal received two bundles of documents which were considered during the hearing. It heard oral evidence from HMRC officer Mark Davies, who made the decision to issue the discovery assessment, even though he was not the Officer who notified the assessment to the Appellant. It also heard oral evidence from the Appellant and Mrs West, who also represented the Appellant.
[11] The Tribunal found all three witnesses to be credible and reliable and makes the factual findings below on the balance of probabilities.
[12] Fast Pensions Ltd (hereinafter referred to as “Fast Pensions”) was incorporated on 28 June 2012. At the relevant time, its sole director and shareholder was Sara Moat.
[13] Blu Funding Corporation Ltd (hereinafter referred to as “Blu Funding”) was incorporated on 31 August 2011. It changed its name to Blu Personal Finance Ltd on 14 November 2013 subsequent to the key events in question (the transfer of the pension and receipt of the loan). At the relevant time, its sole director and shareholder was Ian Chapman.
[14] The FP1 Retirement Plan was established on 27 July 2012. Its sponsoring employer was Fast Pensions. It was registered with HMRC on the same day by AC Management and Administration Ltd (“ACMAL”).
[15] At the time of the transfer of the Appellant's pension, between November 2012 and January 2013, the administrators of the FP1 Retirement Fund were AC Management & Administration Ltd.
[16] The report of the Trustees of the FP1 Retirement Fund (HMRC has taken this to be referring to the FP1 Retirement Plan) indicates that in the year to 7 August 2013, the fund invested a total of £3,820,783, of which £1,352,589.89 was invested in Blu Debt Management Ltd (hereinafter referred to as “Blu Debt Management”) in the form of loans to Blu Debt Management. The appendix to the report indicates that although Fast Pensions funds were invested in Blu Funding, the FP1 Retirement Fund was not one of the funds invested in Blu Funding.
[17] On 30 May 2018, the Insolvency Service issued a press release headed “Rogue pension and finance companies closed down after abusing millions of pounds”. The text continued “Fast Pensions Ltd and five other related firms have been wound up in the public interest at the High Court on 30 May 2018”.
[18] In August 2012 the Appellant received a telephone call from Mr Mark Young on behalf of Blu Funding offering a loan. The Appellant had been seeking a loan because he was in financial difficulty following ill health and readily accepted – he thought he might be able to obtain a loan of £5,000 but was told that a greater sum might be available. In September 2012 the Appellant asked for a loan of £10,000 and this was agreed. Later (it is not clear when) he was in fact offered a larger loan of £11,650. The loan was on normal commercial terms involving repayments over seven years. He and his wife later signed the paperwork to accept the loan...
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...a postscript whereby the FTT questions HMRC's decision not to include a related case in the authorities bundle. The relevant case, West [2019] TC 07385, also concerned FP1 and Blu, and the pension liberation scheme used. The decision included a detailed discussion of the legislation and the......