Peter Hayes v Revenue & Customs (INCOME TAX/CORPORATION TAX : Pension scheme) [2020] UKFTT 92 (TC)

FTT-Tax
Peter Hayes v Revenue & Customs (INCOME TAX/CORPORATION TAX : Pension scheme)
[2020] UKFTT 92 (TC) · 2019-11-19
[1]This is an appeal by Mr Peter Hayes (“the appellant”) against a decision dated 14 November 2018 by the respondents (“HMRC”) under Paragraph 12(3) Registered Pension Schemes (Enhanced Lifetime Allowance) Regulations 2006 (“the Regulations”) to refuse to consider information provided by the appellant seeking enhanced protection of his pension against the Lifetime Allowance Charge (“LTAC”).[2]Under Regulation 4(4) of the Regulations the closing date for notifications was 5 April 2009.[3]The appellant asserts that notification was in fact sent to HMRC on 20 July 2006. HMRC say that they have no record of receiving any notification from the appellant before 30 October 2018.[4]Regulation 12 of the Regulations requires HMRC to consider a late notification if the appellant has a reasonable excuse for not giving the notification on or before 5 April 2009 and if he gave the notification without unreasonable delay after the reasonable excuse ceased.[5]Although the appellant asserts that notification was sent to HMRC, it is clear that it never actually reached HMRC. The point at issue therefore is whether the appellant had a reasonable excuse for notifying HMRC accordance with Paragraphs 3(3) and 4(3) of the Regulations after the closing date of 5 April 2009. The appeal is made pursuant to Paragraph 12(4) of the Regulations.[6]HMRC accept that if the appellant had a reasonable excuse for not notifying HMRC prior to the closing date, that excuse ended when the appellant realised HMRC had not been notified and that he notified HMRC without unreasonable delay. Relevant legislation and regulations[7]Section 214 of the Finance Act 2004 introduced the LTAC, that is, an income tax charge on pension benefits where the value of pension benefits arising at a benefit crystallisation event exceeds an individual’s lifetime allowance available at that time. The LTAC created a ceiling on the benefits value that can be built up by holders of registered pension schemes whilst continuing to benefit from tax relief. If the benefits value when taken exceeds the Lifetime Allowance (“LTA”) the difference between the two is subject to the charge. This was to take effect on 6 April 2006, which was known as ‘A Day’.[8]Transitional provisions or ‘Pre-Commencement Rights’ saw the introduction of Primary and Enhanced Protection, allowing a ‘taxpayer’ to avoid the LTAC in circumstances where his pension exceeds the LTA of £1.5 million.[9]Primary protection is provided for by paragraph 7 of Schedule 36 to the Finance Act 2004 (“Schedule 36”) allowing for the benefit of any increases in the LTA if the value of the pension was at least £1,500,000 as at 6 April 2006.[10]Enhanced protection is provided for by paragraph 12 of Schedule 36, which states that the LTAC will not apply if no further contributions are paid after 6 April 2006.[11]Both Primary and Enhanced Protection pursuant to paragraphs 7 and 12 of Schedule 36 required ‘notification’ of intention to rely on the protection to be given to HMRC on or before 5 April 2009 by virtue of Regulations 3(3) and 4(3) of the Regulations.[12]Regulation 4 of the Regulations set out how the notice must be given: Reliance on paragraph 12 of Schedule 36 (lifetime allowances: “enhanced protection”) Regulation 4.(1) This regulation applies in the case of an individual to whom paragraph 12(1) of Schedule 36 has applied at all times on and after 6th April 2006.(2) The individual may give notice of intention to rely on paragraph 12 of Schedule 36 (“paragraph 12”)(3) If the individual intends to rely on paragraph 12, the individual must give a notification to the Revenue and Customs on or before the closing date.(4) For the purposes of this regulation the closing date is 5th April 2009.(5) Paragraph (6) applies if- (a) the individual gives the notification to the Revenue and Customs, and (b) the Revenue and Customs issue a certificate to the individual in response to the giving of the notification.(6) The individual may rely on paragraph 12 during the period beginning on 6th April 2006 and ending on the day on which the Revenue and Customs- (a) revoke the certificate, (b) issue an amended certificate to the individual, or (c) receive notice, given by the individual, that the individual no longer wishes to rely on paragraph 12.[13]Regulation 10 of the Regulations provides that the notification must be in a form prescribed by HMRC and it must be signed and dated by the individual.[14]Late notifications and appeals are provided for by Regulation 12 of the 2006 Regulations as follows: Late submission of notification 12.(1) This regulation applies if an individual - (a) gives a notification to the Revenue and Customs after the closing date, (b) had a reasonable excuse for not giving the notification on or before the closing date, and (c) gives the notification without unreasonable delay after the reasonable excuse ceased.(2) If the Revenue and Customs are satisfied that paragraph (1) applies, they must consider the information provided in the notification.(3) If there is a dispute as to whether paragraph (1) applies, the individual may require the Revenue and Customs to give notice of their decision to refuse to consider the information provided in the notification.(4) If the Revenue and Customs gives notice of their decision to refuse to consider the information provided in the notification, the individual may appeal to the Commissioners.(5) The appeal is to the General Commissioners, except that the individual may elect (in accordance with section 46(1) of the Taxes Management Act 1970(1)) to bring the appeal before the Special Commissioners instead of the General Commissioners.(6) The notice of appeal must be given to the Revenue and Customs within 30 days after the day on which notice of their decision is given to the individual.(7) On an appeal, the Commissioners shall determine whether the individual gave the notification to the Revenue and Customs in the circumstances specified in paragraph (1).(8) If the Commissioners allow the appeal, they shall direct the Revenue and Customs to consider the information provided in the notification.[15]Regulation 13 provides: Procedure on giving of notification to the Revenue and Customs Regulation 13.(1) If an individual gives a notification to the Revenue and Customs, and there are no obvious errors or omissions in the notification (whether errors of principle, arithmetical mistakes or otherwise), the Revenue and Customs must issue a certificate to the individual.(2) ….[16]The effect of Regulations 3, 4 and 13 are that if notification was given to HMRC before 5 April 2009, HMRC must issue a certificate to the individual. The Facts[17]The appellant was employed by Natwest Bank from 1972 until 2000, when the bank became part of the Royal Bank of Scotland (“RBS”) group. During his career with Natwest and RBS, the appellant accrued a substantial defined benefit, non-contributory pension.[18]The introduction of the LTAC in the Finance Act 2004 prompted the appellant to seek advice on his pension arrangements. With the support of his employer and advice from KPMG, a review of the appellant’s pension arrangements took place following which he was advised by his employer to apply for the transitional protection provided for in Paragraphs 7 and 12 Schedule 36, Finance Act 2004. Those instructions were contained in a letter to the appellant of 4 July 2006 from the Head of Group Pensions at RBS.[19]RBS said in their letter that they had completed the notification form (APSS 200) for the appellant “on the basis that you will wish to elect for both primary and enhanced protection”. He was advised to “check the details provided on your behalf as well as supplying your tax reference number in box 1.3 and signing the declaration in section 5”.[20]The appellant was instructed to send the completed form to HMRC. The instructions stated “The completed form should be sent to HM Revenue & Customs, Audit and Pension Scheme Services, Yorke House, Castle Meadow Road, Nottingham, NG2 1BG”.[21]The appellant was further advised “HMRC will send you individual certification and on receipt of this you should send a copy to Group Pension Services, The Royal Bank of Scotland, City Link House, Croydon, CR9 5WH”.[22]Following receipt of the letter the appellant says that he duly completed form APSS 200 and signed and dated it 20 July 2006. He retained a copy and endorsed the covering letter from RBS in the margin (next to the paragraph advising him to send the form to HMRC in Nottingham) ‘PH 20/7’. He says that this was his usual method of recording when he had ‘dealt with something’.[23]Notwithstanding the actions referred to by the appellant, the APSS 200 form was not received by HMRC and in consequence HMRC were not notified of the appellant’s reliance on Paragraphs 7 and 12 Schedule 36, Finance Act 2004 before the closing date of 5 April 2009.[24]The appellant retired, aged 64, on 30 April 2018 and in September/October 2018 he undertook a review of his pension arrangements with the assistance of his professional pensions adviser. He discovered that HMRC’s online records showed no registration protection of his pension.[25]On 26 October 2018, he wrote to HMRC enclosing a copy of the APSS 200 which had been sent to HMRC on 20 July 2006.[26]HMRC say that the letter of 26 October was the first time HMRC were notified of the appellant’s intended reliance on Paragraph 7 and 12 Schedule 36 Finance Act 2004.[27]On 14 November 2018 HMRC rejected the appellant’s application for protection, on the basis that it was received after the closing date of 5 April 2009.[28]The appellant appealed to HMRC on 25 November 2019. He said:
“with the changes in pension tax law due to come into place on 6 April 2006 my employer, Royal Bank of Scotland (RBS) appointed KPMG to provide independent advice to those of us who would be significantly affected by the introduction of the LTA of £1.5m. My pension benefits were calculated at £2,035,443 as at 5 April 2006... I was therefore one of those significantly affected.”
[29]The appellant explained in his letter that his usual procedure for processing post was as follows:
“The tick, initial and date noted on the RBS letter and copy of the application are in my writing and this is typically how I would have recorded having dealt with something...It would have been posted from RBS via my secretary/PA at the time.”
[30]On 18 February 2019 HMRC responded by reiterating their view that the appellant’s notification was out of time and could not be accepted. A statutory review was offered.[31]The appellant declined the offer of a statutory review and appealed to the Tribunal on 27 February 2019. Evidence[32]We were provided with two bundles of evidence, including copy correspondence, a copy of the appellant’s completed form APSS 200, relevant legislation and case law precedent. The appellant also gave oral evidence to the Tribunal. The Appellant’s case[33]In his Notice of appeal he states: · I have done everything that could have been reasonably expected to apply for the LTA protection within the prescribed timescales. · I took the introduction of the LTA in 2005/6 very seriously by thoroughly exploring the options with my employers RBS and taking independent advice from KPMG over a period of several months whilst the complexities and implications of the new regime were understood, both by me and my employers. I recalled when discussing the matter with my advisers that the new rules seemed in many respects to represent a retrospective tax. There had been some surprise that it was necessary to elect to avoid the taxation impact rather than it having ‘been a given’. · My pension benefits at April 2006 already exceeded the new LTA meaning it was obvious I should apply to protect these benefits. I also opted out of further pensionable service and have not contributed to any pension scheme since. · The first time I had cause to check the registration was after I had retired in 2018 and was addressing how to access my pension in September/October. · I retained a copy of the completed notification dated 20 July 2006. I do not have proof of posting and after 12+ years cannot pinpoint where it was posted from. I relied on my PA/Secretary to do this which was normal practice for all mail and correspondence. It would have been highly unusual to ask for any proof of posting and I am sure I would not have done so. HMRC may think that I should have noticed the non-existence of certification before April 2009. Whether the fact that the application went missing was noticed immediately or 12 years later is not relevant - the issue is surely whether the application was submitted, and I believe I have demonstrated that it was submitted. A copy of the papers were carefully filed at my home. · All subsequent actions have been consistent with my belief that the LTA protections were in place. · I applied well within the 3 year window allowed for applications. · I believe that the balance of probability points strongly to the fact that the application was submitted in July 2006. · I have acted expediently immediately the missing registration has come to light.[34]At the hearing, the appellant said that his appeal is based not on whether he has or has not a reasonable excuse for a late notification but from a different position - that he had in fact submitted the notification more than two years before the deadline. The facts and evidence point strongly to that being the case.[35]He had asked HMRC to recognise that the notification was lost somewhere after it was sent and to recognise the notification as if it had been received in 2006 or, with the same effect, to accept the notification now.[36]The circumstances of his pension position at April 2006 meant that protection of his LTA was an obvious route. He had retained a file copy of the notification clearly signed and dated 20 July 2006, together with a copy of the letter from RBS Group Pensions of 4 July 2006 endorsed in the margin with the date he returned the completed form APSS 200.[37]Whilst he did not have proof of posting, he had established that 20 July 2006 was a weekday and that he would have been at work. He was sure that he would have dealt with the application from work as the whole pension review process and associated correspondence had been handled at work. The difficulty in establishing a full audit trail after so many years is that on that day he could have been in either Edinburgh, Dublin or Belfast. During this period he was part of the leadership team on a major project to upgrade the computer system of Ulster Bank (a subsidiary of RBS) and he moved frequently between all three locations.[38]It would have been completely normal practice as a senior executive for him to leave the actual posting of the application to his secretary. Whilst his permanent secretary was based in Edinburgh, he had secretarial support in each of the other locations and the processes for handling external mail were well developed and understood by all secretarial support. The secretary that supported him in Dublin was one of the executive team secretaries and very experienced.[39]He says that he had discovered during the course of these proceedings that loss of mail remains the single most common cause of complaint to Royal Mail - so it does happen, although that had not been his experience. There would have been no reason whatever for him to question the secretary as to whether the item was actually posted, or to ask for proof of posting, as they commonly handled important documents. It was not a one-off event that required checking that it had been done. There would have been no reason to question whether his application was actually posted or to ask for ‘proof’ of postage.[40]After what had become a prolonged process he clearly regarded the matter as complete at that point and filed the copy papers at home. He was aware of subsequent changes to tax related pension rules but did nothing in the ‘solid belief’ that his LTA was protected and no further action was required. He received nothing else that would have put him on notice periodically to check for certification. He had not received the APSS 200 ‘completion notes’ which mention ‘certification’. That had not been sent to him by RBS.[41]All the language leading to the election to protect his benefits was about ‘notification’ of his intent, not about applying for ‘approval’ where one would naturally expect an answer. The election did not require HMRC to exercise a judgement that then needed to be confirmed and therefore he would not have been on notice to look for a reply.[42]He had no cause to seek financial advice until his retirement. In September 2018 he engaged with a Financial Advisor to review and advise on his financial position. He described the gap between his retirement at 30 April 2018 and the discovery of the true position in October 2018, after reviewing his pension with his advisors, as a period of ‘decompression’ after a 45 year working life. His retirement in 2018 was the first occasion he had to consider his retirement position and access to his pension.[43]HMRC rely on the fact that the letter he received from RBS of 4 July 2006 stated that he would receive certification from HMRC. They imply that he was obliged to chase for an acknowledgement of the notification.[44]The appellant accepts that RBS’s letter did indeed say a certificate would be received; but he interpreted that as meaning RBS Group Pensions would require a copy when received. He did not understand it to be a warning that he should diarise or check for receipt.[45]The appellant submits that it cannot be surprising through a very busy working life, from 2006 up to retirement in 2018, with the papers filed out of sight, that the idea of checking for certification never entered his mind, particularly given that he had properly submitted his application very early within the permitted time period.[46]HMRC place some reliance on the case of Yablon v HMRC (TC 05539) where similarly notification had not been sent to HMRC. The Tribunal dismissed Mr Yablon’s appeal because he should have checked more diligently on progress with his advisor and sought more assurance that pension protections had been applied for. The appellant argues that the fundamental difference between his case and Mr Yablon’s is that Mr Yablon appeared to have had no reason to believe the protections he required were in place. In this case the appellant had every reason to believe that the protections were in place and therefore less reason to check.[47]The appellant referred to the case of Irby v HMRC (TC 01979). Mr Irby’s pension value was significant and the financial consequences of not having his LTA protected were greater than the appellant’s. Mr Irby had met with his financial advisors and understood that they would make the necessary notification to HMRC. They did not do so and subsequently maintained that it was never agreed that they would. Over a period of four years Mr Irby did not check with his advisors whether the notification had been given despite the question having been left unanswered at various meetings between these dates.[48]The Tribunal allowed Mr Irby’s appeal and agreed he had a reasonable excuse. Their reason for allowing the appeal was that on the facts they found that he relied on UBS to make the necessary notification in time on his behalf and that such reliance was reasonable.[49]The appellant argues that the lack of checking and follow up on Mr Irby’s part bears comparison to the appellant not checking that the form that he had given to his secretary had in fact been posted and registered by HMRC. As the Tribunal noted in Irby (at paragraphs 44 and 45) it was not for the Tribunal to judge whether there was a more prudent course of action that Mr Irby could have taken, but to determine whether the action he did take was the action of a reasonable person in the circumstances. They judged that it was. The appellant argues that he had even less reason than Mr Irby to have checked, having to all intents and purposes, in his mind, completed the process. HMRC’s case[50]HMRC assert that the appellant has no ‘reasonable excuse’, under Regulation 12(1) (b) of the Regulations, for his failure to submit the notification before the statutory deadline pursuant to Regulations 3(4) and 4(4).[51]The burden of proof lies with the appellant for proving the requirements of Regulation 12 pertaining to a reasonable excuse. The standard of proof is the ordinary civil standard found in civil proceedings, this being the balance of probabilities.[52]HMRC acknowledge that there is no statutory definition of the term ‘reasonable excuse’ or ‘unreasonable delay’. However, the terms appear in a number of contexts within tax legislation and are the subject of ample tribunal and court decisions.[53]The test to apply as referred to in Perrin v HMRC (TC 03614), [2014] UKFTT 488 (TC) paras 99 to 100 First-tier Decision is: "was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?"[99] And a ‘reasonable taxpayer’ is: "...a responsible person with the same experience and other relevant attributes of the taxpayer and placed in the same situation as the taxpayer" [100][54]In Perrin , the Upper Tribunal summarised the approach which should be taken by the FTT at paragraph 81:
"When considering a "reasonable excuse" defence, therefore, in our view the FTT can usefully approach matters in the following way: First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer's own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts). Second, decide which of those facts are proven. Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the FTT, in this context, to ask itself the question "was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?"
Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased). In doing so, the FTT should again decide the matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times."[55]Applying the above criteria, the facts are therefore to be weighed against a hypothetical and prudent taxpayer in the same circumstances as the appellant. If the appellant’s actions would have been taken by a reasonable taxpayer, they may be considered objectively reasonable.[56]HMRC do not dispute that the appellant honestly believed that he had notified HMRC of his reliance on the transitional provisions in Schedule 36 Finance Act 2004. The respondents’ submission is that, viewed objectively, the appellant’s honest belief did not amount to a reasonable excuse for late notification.[57]The letter from RBS to the appellant was unequivocal in placing the responsibility for submitting the notification to HMRC on the appellant himself. He was specifically told that he should expect an acknowledgement and an individual certificate of notification. He was also asked to send a copy to RBS.[58]It is clear that the appellant was aware of the significance of notification because he ensured that he kept a record of the form at home. Despite that knowledge, the appellant made the assumption that the form had been sent but did not make any checks that it had been sent.[59]In relation to a taxpayer’s reliance on his secretary, HMRC submit that reliance upon an agent can constitute a reasonable excuse ( Irby TC01979 [43]; Twaite TC06033 [29]; Tipping TC 05939 [28]) but the reasonableness of the reliance is the predominant factor. Reliance is not “a trump card which invariably constitutes a reasonable excuse” ( Tipping [29]). It must be assessed circumstantially, particularly in a fact sensitive appeal.[60]In the absence of a certificate from HMRC, a reasonable person in the appellant’s circumstances should have realised that he had not notified HMRC.[61]In Yablon , the tribunal stated: “A reasonable taxpayer, anxious to ensure that an election for protection on which a large amount of money depended, would therefore have felt a particular need to ensure that Mr Wicks was able to confirm that the election had been made” [para 29][62]At paragraph 28 of Yablon [A211] the tribunal stated:
“A reasonable taxpayer would have taken steps to check periodically with Origen as to the progress being made with enquiries assuming more urgency as the deadline of 5 April 2009 approached.”
[63]In the present case, the appellant did no more than sign and date the APSS 200 and pass it to his secretary. A reasonable taxpayer in the appellant’s circumstances should have taken steps to ensure that his notification had been properly made. The appellant did not act reasonably under the circumstances.[64]HMRC contend that the appellant possessed no reasonable excuse for the failure to submit the notification on time. His excuse is simple; he thought notification had been made and therefore that protection was in place. However, on an objective basis he had no reasonable grounds for believing that. He had been made very much aware by RBS that he should expect to receive an acknowledgement from HMRC upon receipt of notification APSS 200.[65]It was not until 26 October 2018 that the appellant submitted his notification. The appellant has not met the requisite stipulations under Regulation 12.[66]The appellant did not have a reasonable excuse for failing to notify HMRC prior to the closing date. The decision by HMRC to refuse to consider information provided by the appellant seeking enhanced protection of his pension against the LTAC is correct. Conclusion[67]Taking all the facts into account, we find that it is inherently improbable that the appellant did not send his notification seeking enhanced protection of his pension to HMRC on 20 July 2006.[68]However, his notification did not reach HMRC and an acknowledgement and certificate were not issued. We accept that his interpretation of RBS’s letter was that in order to protect his pension benefits he had to give ‘notification’ of his intent, but that this notification was not subject to HMRC approval, where one would naturally expect a response from HMRC. In hindsight the appellant would no doubt agree that he should have followed up the receipt of the certification from HMRC as instructed by his employer and that the absence of such certification may have signalled a problem. However, as he argued, the notification did not require HMRC to exercise a judgement that needed to be confirmed and therefore there was arguably less reason for him to have been on notice to look for a reply from HMRC.[69]We also have to take into account the appellant’s actions prior to his failure to check that he had received an acknowledgment from HMRC. The introduction of the LTAC in the Finance Act 2004 prompted the appellant to seek advice on his pension arrangements. With the support of RBS and advice from KPMG, at his own cost, a review of his pension arrangements took place following which he concluded that he had to apply for the transitional protection provided for in Paragraphs 7 and 12 Schedule 36, Finance Act 2004. The review had taken place over an extended period of time. He had to consider the various options that his employers, RBS, were able to make available consequent upon the pension reforms which ranged from no change through to a full opt out of their scheme, along with various salary changes depending on the options chosen. It became both obvious and crucial that protecting the then current value of his pension was, as he said “the final piece of the jigsaw”. His employer completed form APSS 200 which he then checked, signed, dated and sent to HMRC, at the address in Nottingham given to him by RBS. He did this in July 2006, more than two years before the deadline of 5 April 2009.[70]We found the appellant to be an honest and credible witness and had no reason to doubt what he told us. He had done as much as he could to protect his pension but unfortunately at the last hurdle had simply failed to check that HMRC had received his notification.[71]Viewed objectively on the facts, the appellant had a reasonable excuse for the ‘late notification’ that subsequently had to be given. HMRC agree that the appellant remedied the ‘omission’, diligently and without unreasonable delay, on becoming aware of the fact that his notification had not reached HMRC.[72]Therefore the appellant has shown a reasonable excuse for the late notification within regulation 12(1)(b) of the Regulations. The appeal is allowed and we direct HMRC to consider the information provided in the appellant’s late notification (regulation 12(8)).[73]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. MICHAEL CONNELL TRIBUNAL JUDGE RELEASE DATE: 17 FEBRUARY 2020