Case Preview: John Mander Pension Scheme Trustees Ltd v Comrs for HMRC
17 Friday Jul 2015
This is a test case for many pending cases and concerns the consideration of whether HMRC had assessed the appellant in the correct tax year, clarifying a contentious point within Income and Corporation Taxes Act 1988, s 591C.
Facts of the case
On 19 April 2000 the Revenue issued a notice withdrawing approval of a pension scheme, known as the John Mander Scheme, to Louvre Trustees Limited, the sole trustee of the scheme. The letter read:
“…it is the opinion of the Board of Inland Revenue that the facts concerning the administration of this scheme no longer warrant the continuation of its approval under s 591, Income and Corporation Taxes Act 1988. The Board, in exercise of its powers under ICTA 1988, s591B, ICTA 1988 has therefore decided to give notice that approval has been withdrawn with effect from 5 November 1996”.
On 27 July 2000 an assessment was made against Louvre Trustees Limited, with a charge of £475,200, constituting 40% of the estimated value of Mr Mander’s pension fund as of 4 November 1996. The relevant tax year of assessment was stated to be 2000/2001. Louvre Trustees Limited, having unsuccessfully sought permission for a judicial review of the decision, subsequently resigned as the trustee. John Mander Pension Scheme Trustees Ltd was appointed to replace Louvre Trustees Limited on 12 March 2002.
On 22 January 2007, HMRC issued a protective assessment (an assessment made by HMRC shortly before expiry of a time limit which protects HMRC’s position from being time barred). The second protective assessment referred to the same tax year as the earlier assessment, 2000/2001. The appellant argued that this assessment should have referred to the tax year 1996/1997 rather than 2000/2001 and was therefore either invalid or out of time.
The charge imposed on retirement benefit schemes when approval ceases to have effect is imposed by s 591C (inserted by the Finance Act 1995 s 61). Section 592 allows exemption from the charge if the scheme was approved and ensures the availability of significant tax advantages. However, Finance Act 1991, ss 34 – 36 inserted new sections into ICTA 1988, namely s 591A and s 591B, which provide three different circumstances in which an approval from HMRC may cease to have effect.
Firstly, under s 591A(2), approval ceases by virtue of the operation of the regulations rather than by approval being withdrawn:
“Any retirement benefits scheme approved by the Board by virtue of section 591 before the day on which the section 591 regulations come into force shall cease to be approved by virtue of that section at the end of the period of 36 months beginning with that day if at the end of that period the scheme—
(a) contains a provision of a prohibited description, or
(b) does not contain a provision of a required description,
unless the description of provision is specified in regulations made by the Board for the purposes of this subsection.”
Secondly, under s 591B:
“(1) If in the opinion of the Board the facts concerning any approved scheme or its administration cease to warrant the continuance of their approval of the scheme, they may at any time by notice to the administrator, withdraw their approval on such grounds, and from such date (which shall not be earlier than the date when those facts first ceased to warrant the continuance of their approval or 17th March 1987, whichever is the later), as may be specified in the notice.”
According to Lord Justice Moses of the Court of Appeal, under, s 591B, approval ceases to have effect only where the board is of the opinion that the facts warrant the withdrawal of the approval and then exercises its power to withdraw the approval by notice.
The third method is found within s 591B(2) and, like, s 591A(2), approval does not cease to have effect due to being withdrawn by the Revenue:
“(2) Where an alteration has been made in a retirement benefits scheme, no approval given by the Board as regards the scheme before the alteration shall apply after the date of the alteration unless—
(a)the alteration has been approved by the Board, or
(b)the scheme is of a class specified in regulations made by the Board for the purposes of this paragraph and the alteration is of a description so specified in relation to schemes of that class.”
Here, approval will cease to have effect if an alteration made to the retirement benefits scheme is made without approval given by HMRC.
As stated above, s 591C(1) imposes a charge:
“Where an approval of a scheme to which this section applies ceases to have effect […]”
Thus, s 591C imposes a tax charge where one of the three methods stated above causes approval to cease to have effect. Section 591D(7) exists to provide clarity as to the exact date on which approval will “cease to have effect”:
“(7) The reference in section 591C(1) to an approval of a scheme ceasing to have effect is a reference to—
(a) the scheme ceasing to be an approved scheme by virtue of section 591A(2);
(b) the approval of the scheme being withdrawn under section 591B(1); or
(c) the approval of the scheme no longer applying by virtue of section 591B(2);
and any reference in section 591C to the date of the cessation of the approval of the scheme shall be construed accordingly.”
This was in recognition of the different dates that could apply using the three different methods:
- s 591A – the date falling 36 months after the s.591 Regulations came into force.
- s 591B(1) – the date of cessation of approval, or, the date of withdrawal of the notice.
- s 591B(2) – the date on which the amendment was made.
The point in contention in the present case is s.591B(1); the notice stated that the date of cessation of approval was during the tax year 1996/1997 but the notice actually withdrawing approval was issued during the 2000/2001 tax year.
Decision at first instance
The First Tier Tribunal and Upper Tribunal concluded that unlike the other two methods, , s 591B(1) required the exercise of a discretionary power by the Revenue. Consequently, two dates are possible under s.591B: the date on which notice of withdrawal is actually given and the date on which such withdrawal is effective.
Furthermore, the inclusion of the words “tax shall be charged” rather than “tax shall be deemed to have been charged” in ICTA 1988, s 591C(1) makes it clear that the charge could not arise until HMRC took the decision to withdraw approval.
Court of Appeal
The Court of Appeal confirmed the views of the First Tier Tribunal and Upper Tribunal, dismissing the arguments put forward by the appellant that the reference to the date of cessation of the approval of the scheme must be to the date from which approval ceased to have effect in the ordinary sense of the word.
All three judges of the Court of Appeal unanimously agreed that to align one’s thoughts with this position would be to wholly disregard the existence of s 591D(7)(b). The reference to “the approval of the scheme being withdrawn” refers not to the date of cessation of approval, but to the date on which approval is withdrawn by way of the notice being given.
The fact that the notice may and often does specify an earlier date of cessation by reference to when the approval ceased to be satisfied is irrelevant for this purpose.
The issues which the Supreme Court had to consider were whether the First Tier Tribunal, Upper Tribunal and Court of Appeal were wrong to agree with HMRC and whether, on close examination of the legislation, the correct tax year is in fact 1996/1997.
The appeal was heard on 16 June 2015 by Lord Neuberger, Lord Sumption, Lord Reed, Lord Carnwath and Lord Hodge and judgment is currently awaited.