SIPP scheme administrator avoids 'pension liberation' tax charge

In HMRC v Sippchoice Ltd [2017] UKUT 87 (TCC) the Upper Tribunal (UT) has upheld the decision of the First-tier Tribunal (FTT) that Sippchoice should not be subject to scheme sanction charges but said that the FTT's reference to MTIC case law in assessing the evidential burden was incorrect.

Background

Sippchoice Ltd (the Administrator) operated a self-invested personal pension scheme, known as the Sippchoice Bespoke SIPP (the Pension Scheme).  HMRC claimed that the Pension Scheme was used as a pension liberation vehicle by allowing members to invest their funds in Imperium Enterprises Ltd (Imperium), and then indirectly accessing these funds in the form of loans before the age at which members are permitted to obtain such benefits, namely, 55.

HMRC argued that such loans were unauthorised member payments for the purposes of section 160(2), Finance Act 2004. 

Where an unauthorised member payment is made a charge to income tax, known as an unauthorised payments charge, may be made by HMRC under section 208, Finance Act 2004. Such a charge was imposed by HMRC on the majority of the members of the Pension Scheme. 

The Administrator applied, pursuant to section 268(5), Finance Act 2004, for discharge of its liability to the scheme sanction charges on the grounds set out in section 268(7)(a) and (b), Finance Act 2004, namely, that it reasonably believed any unauthorised payment was not "a scheme chargeable payment" and it would not be "just and reasonable" for liability to be imposed on it. 

The Administrator's appeal was allowed by the FTT.

In reaching its decision, the FTT considered the decision of the Court of Appeal in Moblix Ltd (in administration) and others v HMRC [2010] STC 1436, which was a case concerning missing trader intra community (MTIC) fraud and determined that the evidential issues and approach should be similar. The FTT concluded that having recognised the possibility of pension liberation and made proportionate enquiries, it was reasonable for the Administrator to be satisfied with the responses it had received which appeared to be genuine. 

Our previous blog on the FTT's decision can be found here.

UT's decision

HMRC appealed to the UT on the basis that (i) the FTT had erred in law in determining that the charge fell under section 268(7)(a) and (ii) in relation to the later part of the period in which the Pension Scheme had operated, the FTT's finding was inconsistent with the documentary evidence. 

With regard to (i) HMRC argued that the Administrator has to form a belief that the unauthorised payment was not a scheme chargeable payment and any such belief must be reasonably held.

It was accepted that the Administrator was in fact unaware that an unauthorised payment had been made. With regard to the argument that the belief must be reasonably held, HMRC argued that the FTT had misinterpreted the meaning of "reasonable belief" by applying that test in accordance with the case law relevant to MTIC fraud and that the UT was accordingly able to revisit the FTT's findings on that point as MTIC case law is founded in EU law principles of fraudulent evasion and is specific to that area. 

The UT agreed with HMRC that the Moblix approach, which had been adopted by the FTT, was not appropriate. However, it was not prepared to look behind that finding on the basis that factual judgments of that type are not susceptible to appeal unless they are founded on an error of law (Proctor & Gamble v HMRC [2009] STC 1990). The UT did not consider that the FTT had made any errors of law when undertaking the evaluative process of assessing the evidence and coming to its conclusion that the Administrator's belief had been reasonable.  

In relation to (ii), HMRC's argument was that, at a meeting which took place between the Administrator and Imperium, the Administrator asked whether 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 that, for periods subsequent to that meeting, the evidence did not disclose circumstances which would have indicated to the Administrator that a more sophisticated scheme was being operated. The UT rejected this argument. It was of the view that the FTT's finding was one that it was entitled to make on the evidence before it.

HMRC's appeal was dismissed.

Comment

Though fact sensitive, this decision will be welcomed by pension administrators and provides helpful guidance on the boundaries of what the tribunals will consider to be reasonable conduct on the part of pension administrators when discharging their duties. 

A copy of the decision can be viewed here.