“Our information indicates that a payment made by Laversham Marketing Ltd Pension Scheme to you or in respect of you was not an authorised payment, I am currently liaising with Aston Court Chambers IOM Limited on obtaining further information regarding this matter. Following a change in legislation brought about by Schedule 39Finance Act 2008 in relation to HMRC time limits for the issue of assessments and determinations, HMRC has issued an assessment in order to protect its position and ensure that any potential tax due for the year ended5 April 2010 is not lost. This is in connection with the ongoing enquiry into the transfers into the Laversham Marketing Ltd Pension Scheme, your surrender of benefits under that scheme and the subsequent payment from the scheme to Laversham Marketing Ltd. The assessment is based on the surplus payment figure that was made to Laversham Marketing Ltd. Amount of unauthorised payment£2,115,049.68 Tax due at 40%£846,019.87 Tax due at 15% (surcharge)£317,257.45 Total tax due£1,163,277.32 HMRC will continue with its enquiries in order to establish the correct amount of tax for the year ended5 April 2010 and you should not, therefore, consider this assessment to signify the closure of HMRC’s enquiries. …”
“(1) A charge to income tax, to be known as the unauthorised payments charge, arises where an unauthorised payment is made by a registered pension scheme. (2) The person liable to the charge— (a) in the case of an unauthorised member payment made to or in respect of a person before the person's death, is the person, 6 … (c) in the case of an unauthorised employer payment, is the person to or in respect of whom the payment is made. ... (5) The rate of the charge is 40% in respect of the unauthorised payment.”
“(1) A charge to income tax, to be known as the unauthorised payments surcharge, arises where a surchargeable unauthorised payment is made by a registered pension scheme. … (3) The person liable to the charge— (a) in the case of a surchargeable unauthorised member payment made to or in respect of a person before the person's death, is the person, … (c) in the case of a surchargeable unauthorised employer payment, is the person to or in respect of whom the payment was made. … (6) The rate of the charge is 15% in respect of the surchargeable unauthorised payment.”
“(7) The surcharge threshold is reached if the unauthorised payments percentage reaches 25%. (8) The unauthorised payments percentage is the aggregate of the percentages of the pension fund used up by each unauthorised member payment made by the pension scheme [to or in respect of the person] 2 on or after the reference date. (9) The percentage of the pension fund used up on the occasion of an unauthorised member payment is— UMP VR × 100 where— 7 UMP is the amount of the unauthorised member payment, and VR is an amount equal to the aggregate of the value of the member's rights under arrangements relating to the member under the pension scheme when the unauthorised payment is made (or, if the unauthorised member payment is made after the member has died or has otherwise ceased to be a member of the pension scheme, at the date when the member died or otherwise ceased to be a member).”
“(1) The only payments which a registered pension scheme is authorised to make to or in respect of a person who is or has been a member of the pension scheme are those specified in section 164. (2) In this Part ‘unauthorised member payment’ means— (a) a payment by a registered pension scheme to or in respect of a person who is or has been a member of the pension scheme which is not authorised by section 164, and (b) anything which is to be treated as an unauthorised payment to or in respect of a person who is or has been a member of the pension scheme under this Part. … (4) In this Part “unauthorised employer payment” means— (a) a payment by a registered pension scheme that is an occupational pension scheme, to or in respect of a person who is or has been a sponsoring employer, which is not authorised by section 175, and (b) anything which is to be treated as an unauthorised payment to a person who is or has been a sponsoring employer under section 181.
“(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment— (a) that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or (b) that an assessment to tax is or has become insufficient, or (c) that any relief which has been given is or has become excessive, the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax. (2) Where— (a) the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, and (b) the situation mentioned in subsection (1) above is attributable to an error or mistake in the return as to the basis on which his liability ought to have been computed, the taxpayer shall not be assessed under that subsection in respect of the year of assessment there mentioned if the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made. (3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above— (a) in respect of the year of assessment mentioned in that subsection; and (b) in the same capacity as that in which he made and delivered the return, unless one of the two conditions mentioned below is fulfilled. (4) The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf. (5) The second condition is that at the time when an officer of the Board— 9 (a) ceased to be entitled to give notice of his intention to enquire into the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment; or (b) informed the taxpayer that he had completed his enquiries into that return, the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above. (6) For the purposes of subsection (5) above, information is made available to an officer of the Board if— (a) it is contained in the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment (the return), or in any accounts, statements or documents accompanying the return; (b) it is contained in any claim made as regards the relevant year of assessment by the taxpayer acting in the same capacity as that in which he made the return, or in any accounts, statements or documents accompanying any such claim; (c) it is contained in any documents, accounts or particulars which, for the purposes of any enquiries into the return or any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer; or (d) it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above— (i) could reasonably be expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above; or (ii) are notified in writing by the taxpayer to an officer of the Board.”
“In my judgment there is no reason in the present case why Parliament should seek in s 601 to tax a payment which was not effectively made, and indeed the policy of the sections would … suggest otherwise. So 12 I turn to the wording of the section to see if there is anything in that section or the group of sections of which it forms part to indicate that when Parliament used the term ‘payment’ in s601 it was intending to catch not merely effective payments but also a payment which, to use Lord Macmillan's words in Paton (1938] AC 341 at 356 …), was a fiction and not a fact. That construction is not dictated by the term ‘payment’ on its own; as a matter of the ordinary use of language, Hillsdown did not receive ‘payment’ from the pension fund. But, even apart from that, there are in my judgment indications in the sections that the payment had to be a real payment. For instance, tax is calculated on the amount of the payment if it is in cash. If the payment is in kind it is paid on the value of the asset transferred. There is no reason to suppose that, save for some possible exceptions, the two types of payments are to bear different rates of tax, and on that basis the payment, if in cash, would have to be a real payment. There may be some exceptions where, for instance, a loan is made which is not of the specified description. The Revenue says that in those circumstances tax is charged on the nominal amount of the loan, even if the nominal amount of the loan has to be repaid. I will assume that this construction is correct but express no view on it. Likewise, s 601(6)(a) throws some light on the present problem. It uses the word ‘transfer’ in relation to transfer of assets. This provision is not talking about a transfer of legal title. Not all assets require to be transferred by transfer of legal title and the subsection is dealing with all assets, whether or not falling within the description of assets that can only be transferred by following some special formality (like shares). Rather this provision is referring to a real transfer of an asset and the use of the word ‘other’ before ‘transfer of money's worth’ supports this conclusion. Likewise, one of the ways in which a surplus in an approved scheme can be reduced is by ‘making payments to an employer’ (see para 3(3)(a) of Sch 22). A surplus could not be reduced by a payment which did not have the effect of transferring the equitable interest in the monies paid to the employer. This is also some indication that a payment under that schedule is a transaction which has substance, and the same meaning should apply to s 601. This point is not affected by the fact that s 601 applies to other payments as well as the reduction of surplus under Sch 22 because it is still the same word ‘payment’ which is being used and one is entitled to start from the basis that it is being used consistently. Further support for [Hillsdown’s] approach to ‘payment’ is to be found in s 601(1) itself: the payment must be ‘out of’ the fund. In my judgment, these words indicate that the payment must result in funds effectively leaving the fund as intended by the transaction (whether absolutely or for a period, as in the case of a loan). The words ‘out of’ are not apt to describe a payment which, contrary to the stated effect of the transaction, does not have the effect of changing the ownership of the monies paid and is in fact reversed. Likewise, under s 601, the payment must be made ‘to the employer’ and this must mean in the employer's capacity as such and exclude the case where the employer merely receives the monies as a trustee arising under operation of law for the fund. Section 6(2) of the 1988 Act provides that the charge to income does not apply to income of a company. There is an exception for income arising to it in ‘a fiduciary representative capacity’. [The 13 Revenue] placed reliance on this but I do not consider that the absence of a similar provision in s 601 is significant because the word ‘payment’ in s 601 of itself entails a payment of substance and not where the beneficial ownership remains with the payer. Moreover, in this case the trust is merely a legal mechanism to describe the obligations which are imposed on the recipient. For all these reasons, in my judgment, the plaintiffs succeed on the construction point. I do not consider that the court should attempt to find a comprehensive definition of ‘payment’ for this purpose. It is enough to say that the purported payments were, on the facts of this case, without substance. No beneficial interest passed and they had to be returned to the HF trustee. In those circumstances, applying the principle in Paton and similar cases, they were not really payments at all in the eyes of the law.”
“In this case, if the taxpayer, who was not only a member of the scheme, but also a trustee, had known, or should have known, that the payment was unauthorised by the terms of the trust, then he would have been accountable as a trustee. In such circumstances, the funds would have been recoverable by the trustees, and if they had been recovered, there would have been no effective payment to the taxpayer. I am of the view that if each and every one of the following conditions is fulfilled, then there is no taxable payment for the purposes of s 600: that the payment is in breach of trust, that the recipient is accountable to the trustees as an actual or constructive trustee, and that the recipient is able and prepared to account to the trustees. In those circumstances, I would accept that the rationale of the Hillsdown case applies, and I would follow it.”
‘Further support … is to be found in s 601(1) itself: the payment must be ‘out of’ the fund. In my judgment, these words indicate that the payment must result in funds effectively leaving the fund as intended by the transaction (whether absolutely or for a period, as in the case of a loan). The words ‘out of’ are not apt to describe a payment which, contrary to the stated effect of the transaction, does not have the effect of changing the ownership of the moneys paid 15 and is in fact reversed. Likewise, under s 601, the payment must be made ‘to an employer’ and this must mean in the employer's capacity as such and exclude the case where the employer merely receives the moneys as a trustee under a trust arising under operation of law for the fund.’
“In my judgment the principles to be applied are those set out by Henderson J [in Tower MCashback LLP 1] as approved by and elaborated upon by the Supreme Court. So far as material to this appeal, they may be summarised in the following propositions: (i) The scope and subject matter of an appeal are defined by the conclusions stated in the closure notice and by the amendments required to give effect to those conclusions. (ii) What matters are the conclusions set out in the closure notice, not the process of reasoning by which HMRC reached those conclusions. (iii) The closure notice must be read in context in order properly to understand its meaning. (iv) Subject always to the requirements of fairness and proper case management, HMRC can advance new arguments before the FTT to support the conclusions set out in the closure notice.”
“The scope and subject matter of the appeal to the FTT were defined by the conclusions stated in the closure notice and the amendments required to give effect to them. HMRC were not, 23 however, restricted on appeal to the process of reasoning by which they had reached those conclusions and they were free to deploy new arguments in support of them, subject to the exercise by the FTT of its case management powers to ensure that Fidex was not ambushed.”