DECISION
1. HMRC
issued an assessment for £475,200 on 27 July 2000 on the Louvre Trustees
Limited as trustee of the John Mander Limited Directors Pension Scheme (“the
Scheme”). The Appellant is the current trustee of the Scheme and challenges
the validity of the assessment. A second assessment in the same amount was
raised on 22 January 2007 on the Appellant. That is also under appeal.
2. This
appeal is designated as a lead appeal under Rule 18. The Direction issued by
Judge Berner on 1 February 2011 was that:
“For the purposes of Rule 18 of the Tribunal
Procedure (First-tier) Tribunal)(Tax Chamber) Rules 2009 the following are the
common or related issues of fact or law in the appeals in respect of which this
is the lead appeal:
(1) Whether the relevant year of assessment of the
charge arising under section 591C of the Income and Corporation Taxes Act 1988
is the year ending 5 April 2001; and
(2) (i) Whether the tax charged under s591C ICTA
1988 on the administrator of a scheme, and treated as charged on every relevant
person under s658A ICAT 1988, can be recovered in full from any single relevant
person on the basis that the assessment of only a single relevant person in the
name of the administrator of the scheme establishes joint and several liability
of all relevant persons (subject to s 658(1)(b)), or whether recovery of the
tax from a relevant person requires an assessment of that specific relevant
person,
(ii) If the liability is joint and
several, whether it extends to relevant persons not in existence at the time of
the assessments.”
Further submissions
3. The
Appellant made further submissions on 19 July 2011 after the end of the
hearing. The submissions were on two points: s606 and interest. Although
HMRC disputes this, the Appellant justifies the later submissions on the
grounds that they were matters raised at the hearing by HMRC which were not
presaged in its skeleton argument. We do not need to resolve this dispute as
HMRC, although stating it was inappropriate for further submission to be made,
did in fact reply to them, so we accepted both the submissions and HMRC’s
reply.
4. The
Appellant responded to HMRC’s reply on 25 July with a brief reply and HMRC
again said that they did not think further submissions appropriate and objected
to their admission. The Appellant then formally applied for them to be
considered and HMRC withdraw their objection on the grounds the submissions
added nothing so objecting to their consideration would waste time and costs.
So we considered the submissions of 25 July as well.
5. We
note in passing that there must be finality in litigation and unless a party
applies for and is given permission at the hearing to make later submissions,
submissions after the hearing should normally only be made in exceptional
circumstances.
The facts
6. There
was a statement of agreed facts between the parties. There were also two
witness statements by Mr John Mander. HMRC did not choose to cross-examine Mr
Mander and his statements were therefore unchallenged and accepted by this
Tribunal. However, virtually all of both statements were concerned with Mr Mander’s
personal history, current financial position, what had happened to the funds in
Vesuvius Scheme, and the authorship of his witness statement in the judicial
review proceedings referred to below. None of these matters are relevant to
this appeal and we do not refer them again apart from (briefly) Mr Mander’s
motivation in transferring the funds to the Vesuvius Scheme in paragraph 16
below.
7. We
find the relevant facts were as follows:
8. The
Scheme was created by a trust deed in 1987 and approved as a retirement benefit
scheme under Chapter 1 of Part XIV Income and Corporation Taxes Act 1988
(“ICTA”) by the Inland Revenue. The beneficiaries of it were Mr and Mrs J
Mander.
The Trustees
9. The
original trustees were Mr & Mrs J Mander and Mr A Jackson. Mr Jackson
resigned on 9 September 1994 and on the same day DJT Trustees Ltd was appointed
in his place. On 5 November 1996 Mr & Mrs J Mander resigned as trustees
and the Louvre Trust Company Limited (a Guernsey registered company) was
appointed in their place.
10. On 18 March 1997
DJT Trustees Ltd resigned as trustee. This left the Louvre Trust Company
Limited as the only trustee. On 20 June 1997 TM Trustees Ltd was appointed and
Mrs Mander re-appointed as trustees and the Louvre Trust Company resigned.
11. On 26 February
1998 Louvre Trustees Limited (another Guernsey registered company) was
appointed as trustee and Mrs Mander resigned. Louvre Trustees Limited resigned
as trustee on 1 November 2001, leaving TM Trustees Ltd as the only trustee. On
12 March 2002 the Appellant was appointed as trustee. It had been incorporated
as a company only a few days earlier, on 28 February 2002. On 22 March 2007 TM
Trustees Ltd resigned as trustee so that at the date of the hearing the only
trustee was the Appellant.
Transfer of funds
12. On the same day
that Mr & Mrs Mander resigned as trustees, 5 November 1996, the funds of
the pension scheme were transferred to the Vesuvius Shipping Limited Pension
Scheme (“the Vesuvius Scheme”). The Vesuvius Scheme had originally been a
pension scheme approved by the Inland Revenue, but it became unapproved by
reason of a change to the scheme rules which permitted it to make loans on
terms not permitted for approved schemes.
Withdrawal of approval
13. On 19 April 2000
the Inland Revenue wrote two letters, one to the Louvre Trust Company Limited
and one to TM Trustees Limited notifying them that the Inland Revenue were
withdrawing approval from the Scheme. The letters said
“The Board….has therefore decided to give notice
that approval has been withdrawn with effect from 5 November 1996.”
14. On 27 July 2000
an assessment was made on the Louvre Trustees Limited in the sum of £475,200
being 40% of the estimated value of the Scheme funds as at 4 November 1996.
The year of assessment was stated as 2000/2001. The assessment was appealed on
31 July 2000.
15. A further
assessment was raised by HMRC on 22 January 2007 against the then two trustees
of the Scheme, the Appellant and TM Trustees Ltd. It was appealed on 13
February 2007.
Motives
16. The motivation
of the appellant and HMRC is irrelevant to this appeal. Mr Mander in his
witness statement gave evidence that the scheme assets were transferred in 1996
to the Vesuvius Scheme because he did not want the funds in so restrictive a
regime which necessitated the purchase of an annuity. He wanted the trustees
to have freedom to do other things with the money. HMRC describe this as tax
avoidance. The Appellant, on the other hand, considers Mr Mander should not be
criticised as the tax charge on the loss of approval of the retirement benefits
scheme was rightly in its view described as “Draconian” by the Special
Commissioner in Thorpe [2008] STC (SCD) 802, because it is a charge at
40% on the funds’ value despite payments out of the fund being subject to tax.
In passing, we note that we do not agree with the Appellant’s view: the purpose of the 40% charge on assets leaving an approved scheme is to re-coup the tax
advantages the funds enjoyed while in an approved scheme. If a scheme member
does not wish to abide by the rules, and in particular accept the limitations
on what can be done with the funds in an approved scheme, then he is not
entitled to the tax benefits, and it seems quite reasonable for the Government
to seek to recoup them. As Sir Edward Evans-Lombe said in Thorpe, at
page 2136 paragraph 45, there is no element of double taxation in this charge
to tax.
17. However, none of
this is relevant to this case. Quite rightly no one suggested that this
Tribunal had any judicial review function and we did not conduct any review of
HMRC’s decision to withdraw approval from the Scheme. A judicial review having
failed in 2001, HMRC’s power to withdraw approval and to raise an assessment
could not be challenged: the case is about whether approval was validly
withdrawn, whether the two assessments were validly made, at the right time, on
the right person and in respect of the right year.
Preliminary issue
18. The Appellant
applied for leave on 8 February 2011 to add a new ground of appeal. HMRC
opposed the application. The new ground of appeal was that the withdrawal of
approval of the Scheme was ineffective. This was because at the time of the
withdrawal of approval on 19 June 2000 the administrator of the scheme was
Louvre Trustees Limited and TM Trustees Limited. Two notices of withdrawal,
however, were sent, one to the Louvre Trust Company and one to TM Trustees Ltd.
19. HMRC’s grounds
of opposition to the application were:
·
The validity of the notice of withdrawal was not appealable under
section 31 TMA 1970. The proper course of action to challenge the notice is by
judicial review but not only had this Tribunal no jurisdiction to hear a
judicial review (see Lambert v Glover [2001] STC (SCD) 250), the
appellant had already sought leave and been refused permission to apply for judicial
review. Therefore, allowing the amendment would give the Appellant a second
and improper challenge to the notice, which would constitute an abuse of
process;
·
The ground of appeal was raised too late for HMRC to deal with it
by issuing a new notice;
·
Notice was in fact given to TM Trustees; the ground of appeal
was unmeritorious and bound to fail as there was no dispute that the Louvre
Trustees Limited had known about the withdrawal of approval at the time even
though the notice was not addressed to it.
The jurisdiction point
20. The Appellant’s
response to the first point was that it was not appealing the validity of the
notice per se: it was appealing its liability to an assessment under s31 TMA in
the course of which it was challenging whether the pre-conditions to liability
were met and in particular whether there was in fact an effective withdrawal of
approval.
21. We agree with
the Appellant. Mr Justice Sullivan at the judicial review (no. 3644) hearing
on 11 April 2001 was not asked to rule whether an assessment was validly made
as a matter of law nor even whether HMRC’s purported withdrawal of approval was
effective: it was assumed it was effective and he was being asked whether Mr
Mander should be given permission to bring a judicial review action against
HMRC for its decision to withdraw approval from the scheme.
22. Mr Mander’s
application was refused on two grounds. Firstly, because of material
non-disclosure by him and secondly, because the Judge considered HMRC were
entitled to conclude the scheme no longer warranted approval. The issue of
whether the withdrawal of the approval was validly made was not raised with Mr
Justice Sullivan and indeed could not have been the subject of a judicial
review. If HMRC had not actually validly withdrawn approval they could not be
judicial reviewed for doing so.
23. In our view
there could have been no objection to this as a ground of appeal had it been
made in the Notice of Appeal. It is a challenge to whether a charge to tax had
actually arisen. We have jurisdiction to entertain it.
Late or unmeritorious point?
24. Counsel for the
Appellant stated (although no evidence was led on this) that the reason this
point was not made earlier was because Mr Mander and the trustees had been
forced to change advisors not long after the judicial review proceedings, the
papers were not passed to their new advisors, and the result was they were
reliant on HMRC for details of the scheme and did not realise until recently
that the notice was addressed to the wrong trustee.
25. HMRC did not
dispute the change of advisers but did challenge whether the outcome of the
change of advisor was that the Appellant could claim it did not know the full
facts earlier than 2010.
26. Since we were
presented with no evidence on the point (it merely being assertions by each
side’s counsel), we conclude that the burden is on the Appellant to prove that
it could not have known about this discrepancy earlier and without leading
evidence on this it cannot do so. HMRC did not challenge the assertion that
the Appellant’s advisers did not in fact realise the discrepancy until late in
2010 whether or not they could and should have done so earlier. There is no
suggestion that the Appellant deliberately delayed taking this point in the
appeal.
27. The objective of
the Tribunal is a fair trial: one that reaches a correct decision by a fair
process. Ordinarily in reaching its decision a Tribunal should therefore
consider all grounds of appeal which have at least some merit: the only reason for excluding a new ground would normally be that it was made too late to
give the other party time to respond.
28. In this case
HMRC had approximately four months warning of this ground of appeal. We
consider this more than adequate time to address the issue and in any event
they could have asked for an adjournment if they thought they needed more
time. On the contrary they came to the hearing fully prepared to argue the
point.
29. However, timing
is also relevant in this case because the new point by being taken so late it
deprived them, say HMRC, of the opportunity to correct the matter by issuing a
new notice of withdrawal. For the reasons given in paragraph 136 and 140 we do
not agree with HMRC on this point and this is therefore not a ground to refuse
the application. Were it not for this, we would be sympathetic to the view
that we should not exercise our discretion to admit a new point of appeal which
amounts to taking exception to a technical mistake which at the time misled
no-one and which, had it been pointed out timeously, could have been
rectified. Nevertheless there are clearly cases where higher courts have
allowed matters to be raised late in the day, such as in Hoare Trustees v Gardner [1978] STC 89 referred to below. This is because the point is fundamental to
the court’s jurisdiction and we would, therefore, allow the application.
30. The final point
raised by HMRC (that the notice given to one trustee is adequate and/or notice
was effectively given to both) was really a response to the new ground of
appeal rather than a reason for refusing to admit the new ground of appeal. No
doubt we should not admit a new ground of appeal if it was hopeless but this
was not: notice was given only to one of the trustees at the time. Whether
that was sufficient is a clearly arguable point.
31. We allow the
amendment to the Notice of Appeal.
The issues
32. Having allowed
the Appellant to amend its Notice of Appeal, chronologically the first ground
of appeal for this Tribunal to consider was whether HMRC’s purported withdrawal
of approval of the scheme on 19 April 2000 was effective. We will describe
this as the “right person not notified” point.
33. The second issue
raised by the Appellant is whether the assessment on the Louvre Trustees
limited on 27 July 2000 was effective as against the Appellant who is the
current trustee but did not exist at the time of the assessment and could not
have lodged an appeal against it. The Appellant described this as the “wrong
person” point, a term we adopt for convenience.
34. The third issue
was whether the 2007 assessment against the Appellant was out of time. This
was described as the “out of time point”.
35. The last issue
was whether both assessments, being in respect of tax year 2000/2001, were made
in respect of the wrong year. This was described as the “wrong year” point.
Jurisdiction
36. Section 31 Taxes
Management Act 1970 (“TMA”) gives a right of appeal against “an assessment to
tax which is not a self-assessment”. It does not specify who may exercise that
right of appeal. In our view it is only someone affected directly or possibly
indirectly by an assessment who could exercise that right of appeal. Someone
who is not affected by the assessment would have no right to bring an appeal.
37. If the Appellant
is right on the “wrong person” point, it is not affected by the assessment
and therefore we would have no jurisdiction to hear its appeal. Yet the
Tribunal must have jurisdiction to decide whether it has jurisdiction: therefore we conclude we must have jurisdiction to determine whether the Appellant is a
person liable to the tax assessed by the assessment in issue in this appeal.
If we concluded that it was not , then we have no jurisdiction to consider the
other issues.
38. Nevertheless,
although we recognise this point we deal with the issues chronologically so we
take the “right person not notified” issue first and then deal with the “wrong
person” point.
Right person not notified issue.
The law
39. This appeal
concerns a retirement benefits scheme which was approved under chapter 1 of
Part XIV of the Income and Corporation Taxes Act 1988 (“ICTA”). Those
provisions were largely repealed by s 326 and Schedule 42 of the Finance Act
2004 with effect from 6 April 2006. Schedule 36 of the same Act, however,
enacted some transitional provisions.
40. So far as the
2000 assessment is concerned, the repeal is irrelevant as all relevant events,
such as the assessment, took place before 6 April 2006. Even the date on
which the Appellant became a trustee of the Scheme was before that date. This
is not the case with the 2007 assessment and we deal with this point when we
come to that assessment in paragraphs 147-150 below.
41. HMRC’s power to
withdraw approval from a previously approved scheme was contained in s591B ICTA
which provided as follows:
“(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….), as may be specified in the
notice.
(2) …..”
42. It was agreed
that this gave HMRC power to withdraw approval from a scheme from a date
earlier than the date of the notice of withdrawal (although not earlier than
the date on which the events took place which gave rise to the decision to
withdraw). It was also not in dispute that the notice was given on 19 April
2000 withdrawing approval with effect from 5 November 1996, the day the assets
were transferred to the Vesuvius Scheme. Subject to the question of to whom
the notification was given, there was no dispute that the notification was
effective.
43. “Notice” is a
defined term for the Tax Acts in s832(1) ICTA, which provided:
“ ‘notice’ means notice in writing….”
44. Notice must be
given to “the administrator”. This was a defined term in s 611AA ICTA which
provides as follows:
“(1) In this Chapter references to the
administrator, in relation to a retirement benefits scheme, are to the person
who is, or the persons who are, for the time being the administrator of the
scheme by virtue of the following provisions of this section.
(2) Subject to subsection (7) below, where –
(a) the scheme is a trust scheme, and
(b) at any time the trustee, or any of the trustees,
is or are resident in the United Kingdom,
the administrator of the scheme at that time shall
be the trustee or trustees of the scheme.”
……
(9) In this section –
(a) ….
(b) references to the trustee or trustees, in
relation to a trust scheme and to a particular time, are to the person who is
the trustee, or the persons who are the trustees, of the scheme at that time;
….”
45. It was not
suggested that subsection (7) was applicable so that at the time notice in writing
was given on 19 April 2000 the administrator of the scheme was the two
trustees, TM Trustees Ltd and Louvre Trustees Ltd.
Is notice to one trustee sufficient?
46. The Appellant’s
case is that the legislation provides that the “administrator” comprised the
persons who were the trustees at the relevant time. It provided that notice
must be given in writing and given to the administrator.
47. It was accepted
that HMRC only sent the notice to one of the trustees, TM Trustees Ltd, at the
time. The other notice was sent to the right address but in the name of a
former trustee, Louvre Trust Company, with a similar name rather than a
present trustee, Louvre Trustees Ltd. As the Appellant had earlier informed
HMRC of the change in trustees, the mistake was HMRC’s.
48. HMRC submit it
is enough to send the notice to one of the trustees because they are jointly
and severally liable in their office.
49. In our view the
legislation clearly requires notice to the “administrator” and at the time the
administrator comprised both TM Trustees Ltd and Louvre Trustees Limited. So
unless either giving notice to TM Trustees Ltd is to be taken as giving notice
to both trustees, or unless the notice to Louvre Trust Company Limited can be
taken as notice to Louvre Trustees Limited, the notice was not given in
accordance with the legislation.
50. Although we
agree that there is joint and several liability (see paragraphs 90 below), that
cannot alter the plain words of the statute that notice is to be given to the
“administrator” and that there is nothing in the statute that would deem notice
to one trustee to be taken to be notice to both trustees comprising the
administrator. And even if there were any ambiguity in the legislation, we do
not think the statutory scheme means it is obvious that Parliament would have
necessarily intended notice to one trustee to be notice to all.
51. This is a case
where both trustees had kept HMRC informed of their appointment and current
address: there are provisions, such as s 115 TMA, immaterial to this appeal,
which deal with taxpayers who do not keep HMRC informed .
52. Our conclusion
is that the plain words of the statute require “notice to” both trustees
comprising the administrator at the time the notice is given. The second
notice was in the wrong name although at the correct address. Was this “notice
to” Louvre Trustees Limited? If not, notice was not given to the
administrator.
Technical flaw only
53. The Appellant
accepts that Louvre Trustees Limited did know of the notice. It accepts that
it is taking a technical point on the validity of the notice of withdrawal: it does not suggest that in practice sending the notice to the wrong trustee actually caused
any confusion. We find from the correspondence put in evidence and the
judicial review that followed the notice that the advisor (Mr Warner) acting
for the Scheme was well aware of the withdrawal of approval.
54. We raised with
the parties whether s114 TMA would have any application. This section provides:
“(1) An assessment or determination, warrant, or
other proceeding which purports to be made in pursuance of any provision of the
Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of
form, or be affected by reason of a mistake, defect or omission therein, if the
same is in substance and effect in conformity with or according to the intent
and meaning of the Taxes Acts, and if the person or property charged or
intended to be charged or affected is designated therein according to common
intent and understanding.”
55. The Appellant’s view
was that s114 would correct a technical error in the notice of withdrawal of
approval but it could not re-write the past: the notice was sent to the wrong
trustee and s114 could not correct this. However, neither party had considered
the possible application of s114 before the hearing and the cases mentioned in
the following discussion were not brought to the Tribunal’s attention (with the
exception of Baylis in a different context).
56. Our view is that
s114 can apply to a notice of withdrawal of approval because it applies to a
“proceeding” under the Taxes Acts (and ICTA is one of the Taxes Acts as it is
an enactment relating to income tax: see s118(1) TMA and Schedule 1 to the
Interpretation Act 1978). But s114 only rescues the notice if in “substance
and effect” it is in conformity with the meaning of s591B ICTA and if the
person affected is “designated therein according to common intent and
understanding”.
57. Cases, binding
on this Tribunal, have decided that s114 cannot be used by HMRC to correct “gross”
errors. In Baylis v Gregory [1987] STC 297, which we refer to in more
detail below in paragraph 112, the Court of Appeal ruled that s114 could not
correct a reference to an incorrect year of assessment. Prior to this, in Fleming
v London Produce Co Ltd (1968) 44 TC 582 Megarry J commented, obiter, that
he did not think the predecessor of s114(2) would save an assessment if the
name of the taxpayer was not recognisable. The implication is that faulty
spelling can be corrected: but a complete error of identification cannot be.
However, in assessing whether something actually was a gross error he said “The
likelihood of the recipient being deceived or misled would also be an important
factor.”
58. HMRC got the
names completely wrong in the assessment at issue in Hoare Trustees v Gardner [1978] STC 89. Brightman J concluded that with s114(1) as with s114(2) the
likelihood of the recipient being deceived or misled was an important factor.
It was clear, he said, that in Hoare HMRC had intended to assess the current
trustees but by mistake had put the assessment in the name of the previous
trustee. No one had been deceived. He held s114(1) cured the defect.
59. In this case,
HMRC again got the name of the trustee wrong, referring to a previous rather
than current trustee. The mistake was more understandable as the two companies
had the same address and similar names. It caused no one any confusion. Both
trustees were well aware of the notice. S 591B intended the administrator,
defined as both trustees, to be given the notice. Both trustees did receive
notice of the withdrawal. Therefore the notice was in substance and effect in
conformity with s 591B.
60. One of the
persons affected was not actually designated by its proper name, but was it
designated according to common intent and understanding? Again it is not
disputed that Louvre Trustees Limited did know of the notice and we infer it
must have known it was intended to be affected as, apart from anything else Mr
Mander, who was the main beneficiary of the trust and the person on whose
instructions the trustee would act, then sought to judicially review HMRC’s
decision. We find it was the common understanding of the parties that HMRC
intended to designate the current trustees.
61. Our conclusion
is that, on the facts of this case and particularly because no one was in any
doubt who HMRC intended to notify, s114(1) does apply to validate the mistake
in the name of the trustee in one of the two notices withdrawing approval from
the Scheme. This ground of appeal fails.
The wrong person point
62. It is the
Appellant’s case that it is not liable to the 2000 assessment because it was
not named in the assessment. The assessment was on Louvre Trustees Ltd as
administrator of the Scheme and not on the Appellant, which did not exist in
2000.
The law
63. It was not in
dispute between the parties that the liability to tax (if any) on cessation of
approval was provided for by section 591C ICTA (set out more fully below) which
provides in sub-section (3) that:
“…..the person liable for the tax shall be the
administrator of the scheme….”
64. Section 611AA
set out above gave the meaning of “the administrator of the scheme”.
65. s658A ICTA was
introduced by FA 1998 but deemed always to have effect. It provided as follows:
(1) Tax charged under Chapter I or IV of this Part
on the administrator of a scheme –
(a) shall be treated as charged on every relevant
person and be assessable by the Board in the name of the administrator of the
scheme, but
(b) shall not be assessable on any relevant person
who, at the time of the assessment, is no longer either the administrator of
the scheme or included in the persons who are the administrator of the scheme.
(2) For the purposes of subsection (1) above a
person is a relevant person in relation to any charge to tax on the
administrator of a scheme if he is a person who at the time when the charge is
treated as arising or any subsequent time is, or is included in the persons who
are, the administrator of the scheme.
…..
(4) In this section “administrator”, in relation to
a scheme, means the person who is –
(a) the administrator of the scheme within the
meaning given by section 611AA; or
(b) the scheme administrator, as defined in section
630.
(5) ….”
Is an assessment essential?
66. The Appellant’s
submission is that the effect of s658(1)(a) is that it imposes a liability
which is contingent upon a subsequent assessment. To put it another way,
“shall be treated as charged on every relevant person” imposes the liability
but “and be assessable by the board” means it is contingent on an assessment
being raised by the board on that particular relevant person. Mr Sykes says
chargeability and assessment must both occur before there is enforceable
liability to pay the tax. His case is that the Appellant may be chargeable (or
charged) but it has not been assessed (ignoring the 2007 assessment for the
time being). He cites Lord Dunedin in Whitney v IRC 10 TC 88 at 110:
“…there are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute which determines what
persons in respect of what property are liable. Next, there is the
assessment. Liability does not depend on assessment. That, ex hypothesi,
has already been fixed. But assessment particularises the exact sum which a
person liable has to pay. Lastly, come the methods of recovery, if the person
taxed does not voluntarily pay.”
67. The Appellant
says that the words “in the name of the administrator of the scheme” supports
this analysis as it is emphasising each relevant person must be assessed but
assessed in their capacity as administrator of the scheme.
68. HMRC’s point is
that Whitney has to be seen in its context and its context was not a
trust situation. HMRC agrees that there must be an assessment: but Whitney does not require that every assessment must be in the name of the person
liable to pay it. Both parties therefore agree, as we do, that there must be
an assessment but they disagree whether it must be in the name of the current
administrator of the scheme to be enforceable against it.
No joint and several liability?
69. The Appellant
says that if an assessment raised on one person is intended to be enforced
against another person, then there would be an express provision to make that
person jointly and severally liable with the person assessed. Yet, says the
Appellant, there is no mechanism to make it jointly and severally liable with a
relevant person who has been assessed to the tax.
70. The provision
must be express, says the Appellant, as it is with trustees under s9 and s29
TMA. S8A(5) TMA provides:
“The following references, namely –
(a) references in section 9 or 28C of this Act to a
person to whom a notice has been given under this section being chargeable to
tax; and
(b) references in section 29 of this Act to such a
person being assessable to tax,
shall be construed as references to the relevant
trustees of the settlement being so chargeable or, as the case may be, being so
assessed.”
71. This section,
when combined with the meaning of relevant trustees in s118 as encompassing all
future trustees, provides the mechanism by which future trustees are fixed with
liability under a self-assessment made by, or HMRC assessment on, a previous
trustee, without need for a further assessment. There is no equivalent, says
Mr Sykes, in relation to s658A. An assessment under s 658A has to be made by
HMRC under that section: it is not a self-assessable tax as s9(1A) excludes it
from the self-assessment regime. Therefore the deeming provisions of s8A(5) do
not apply.
72. While we accept
that s8A(5) TMA does not apply to s591C ICTA, that does not mean that there is
no mechanism to fix liability for an assessment against a previous
administrator on the new administrator. That depends on how s658A ICTA itself
should be read.
73. Section 658A
clearly provides for joint and several liability for the charge to tax
as it says “shall be treated as charged on every relevant person”. Mr Sykes
point is that this does not extend to assessment. Assessments, he says,
have to be made individually.
74. Mr Sykes points
out that if HMRC are right someone could become an administrator and
unwittingly be made liable for the tax under an assessment issued in the name
of an earlier administrator. However, we note that that is the inevitable consequence
of s8A TMA and must be taken to be intended in the context of trustees in
general. There is no reason to suppose it is not intended in the context of
approved pension scheme trustees either. After all, theoretically, the new
administrator receives the trust assets out of which to meet the liability and
any new administrator should investigate the trust’s liabilities before
agreeing to become the administrator.
75. Mr Sykes also
says that Parliament would have intended the time limits to apply. By allowing
a single assessment to cover all current and future relevant persons,
theoretically there is no time limit: a new administrator appointed 10 years
after the original assessment could find itself fixed with liability. Mr Sykes
is correct: s 37(2)(a) Limitation Act 1980 means that the enforcement of an
assessment, as a debt due to the Crown, has no time limit. However, this is
clearly intended in relation to all other assessments and we do not think that
it can be assumed that Parliament did not intend the outcome postulated by Mr
Sykes. We also agree with Mr Nawbatt’s point that if HMRC intended that there
had to be new assessments every time there was a new trustee, surely the
section would extend the time limits. It does not.
76. A further point
made by Mr Nawbatt was that section 658A(5) ICTA specifically provided that it
was without prejudice to s591D(4) which exempts approved independent trustees
from tax under s591C. Mr Nawbatt says that the clear inference is that without
s 658A(5), approved independent trustees would have joint and several liability
under s 658A for the tax liability on relevant persons in a situation where
this was clearly not intended by Parliament. Yet if Mr Sykes were right s
591D(4) need only provide that they could not be assessed. We do not think
much can be read into this either way.
Construction of s658A(1)(a)
77. It is the
Appellant’s contention that the assessment must be against each and every
relevant person. But if that is what Parliament had intended, we think it is
more likely s658A(1)(a) would have read something like “shall be chargeable and
assessable on every relevant person”. But that is not what it says. It makes
a clear distinction between the persons who are chargeable and the person who
is assessable as it says “treated as charged on every relevant person” but
“assessable…in the name of the administrator”.
78. Section 658A(1)
says every relevant person is “treated as charged”. This envisages a single
charge and assessment and is merely deeming the charge to arise on additional
persons (ie later administrators). It is not requiring HMRC to fix them with
liability by raising a further assessment.
79. Then there is a
clear distinction in that “every” relevant person is chargeable but the
“every” is not repeated in respect of the administrator to be assessed. This
suggests multiple (deemed) chargeability but singular assessment.
80. Further,
chargeability is “on” the relevant person but the assessment is “in the name
of” the administrator. Again linguistically this suggests that the assessment
is not necessarily in the name of the person who is chargeable.
Meaning of “in the name of”
81. This is not how
the Appellant reads “in the name of”. Mr Sykes says the purpose of the phrase
“in the name of” was to convey that the assessment of the relevant person’s
chargeability was in their capacity as administrator. Mr Sykes points as an
example to s767A ICTA where a person other than the company originally assessed
can be assessed to that company’s tax “in the name of the taxpayer company”.
There are other examples of this use of “in the name of” in the Taxation of
Chargeable Gains Act 1992 (“TCGA”). So, says Mr Sykes, “in the name of” merely
indicates the capacity in which they are assessed. It does not mean only a
single assessment is required.
82. The clear
statutory scheme under s8A(5) TMA is that there needs to be only one assessment
to cover successor trustees. But 767A ICTA provides that where liability is
being fixed, not on a successor trustee, but a third party, there must be a new
assessment and the use of the phrase “in the name of” is making the point that
the third party is being fixed with liability of the company. Section 658A(3)
ICTA also expressly provides for a new assessment to be made where the
liability falls on someone who is not the administrator.
83. Our view is that
in s767A(1) ICTA the phrase “in the name of” does not imply that a new
assessment must be raised. On the contrary that is expressly provided for
elsewhere in that sub-section. The use of “in the name of” is simply to
indicate that a third party is being fixed with some other person’s tax
liability.
84. We were also
referred to s 151 Finance Act 1989 which provides that tax may be “assessed and
charged on and in the name of any one or more of the relevant trustees”.
Relevant trustees are those who were trustees at the time of the charge to tax
or at any subsequent time. Mr Nawbatt’s interpretation of this was that
Parliament here provided for liability to pay an assessment to pass to new
trustees without the need for a new assessment to be made. Mr Sykes’
interpretation was the opposite: that Parliament intended a new assessment to
be raised on a trustee if that trustee was to be liable to pay it.
85. We note that
s151 actually pre-dates s8A(5) TMA which was inserted by the Finance Act 1996.
However, it seems likely s8A(5) was intended to be consistent with s151(else
why not repeal s 151?) so HMRC’s interpretation of s151 is the correct one.
86. Mr Nawbatt also
referred us to s69(1) TCGA. This treats successive trustees as one and the
same with the implication being that an assessment of one is an assessment of
all. Mr Sykes accepts that this provision operates in this manner. Further, s
69(4) TMA allows HMRC to assess a third party in particular circumstances with
the liability of the trustees. We think these provisions are consistent with a
general policy in the Taxes Acts that one assessment covers all current and
future trustees, but for liability to be enforced against a third party there
must be a new assessment on that third party.
87. The use of the
words “in the name of” in s658A is in a different context to s 767A and s151 FA: their use in s 658A cannot be to indicate that another person is being charged to the another
person’s liability as the words “treated as charged on every relevant person”
has already given them liability. The words “in the name of” in the context of
s658A must relate solely to the question of assessment and in our view imply
that that a single assessment is sufficient to assess other relevant persons.
88. Such an
interpretation is consistent with the scheme elsewhere in the Taxes Acts
mentioned above, that a new assessment is not called for when a new trustee is
appointed. It is only when the liability of the administrator falls on to
someone who is not an administrator, such as the company or fund members, that
the Taxes Act provide that a new assessment must be made.
89. Further, if the
Appellant’s interpretation was right, then s658A(1) is more likely to have read
“shall be assessable on every relevant person” and the words “in the name of
the administrator” would be otiose. They are not interchangeable phrases.
Conclusion
90. Our conclusion
is that although the statutory scheme is rather different to that in s8A(5),
joint and several liability is the effect of s 658A(1)(a). This is the effect
of the words “in the name of the administrator”: it is providing that, rather
than one assessment being deemed to be in the name of all as in s8A, for s658A
the assessment of the tax chargeable on all relevant persons only needs only to
be in the name of the current administrator.
91. Unlike Mr Sykes,
we do not think that there was a deliberate omission of joint and several
liability provisions from s 658A. On the contrary we think the draftsman
thought that joint and several liability was provided for within s 658A.
Statutory construction of s 658A (1)(b)
92. Mr Sykes’ case
is also that the clear inference from s658(1)(b) ICTA is that each relevant
person must be assessed. Firstly, he says it implies that the assessment falls
on a relevant person because it says “shall not be assessable on any relevant
person”. Secondly, it is because the purpose of s658(1)(b) is to protect from
liability to pay the tax a relevant person who was a relevant person at the
time the charge to tax arose but was not a relevant person at the time of the
assessment. If only one assessment against the current administrator were
needed to fix liability to pay on all relevant persons it ought to have said
something like “shall not be chargeable” on the retired relevant person.
However it actually says “shall not be assessable” clearly implying an
assessment on that relevant person would have been necessary to fix them with
liability to pay.
93. Whereas, says Mr
Sykes, if HMRC are right and only one assessment is required, although a
retired relevant person can not be assessed, they are still chargeable
so S658A fails in its object to protect retired relevant persons.
94. We think there
is another way of reading this. If HMRC are right and there needs to be
only one assessment, it must be on the administrator of the scheme: s658A(1)(b) is therefore simply making clear that it must be on the administrator of the
scheme at the time of the assessment. The administrator of the scheme at the
time the charge arose is not the person who can be assessed if they have
ceased to be administrator at the time of the assessment. But Mr Sykes point
is, that if this is the correct reading, how does it protect retired
administrators? The answer is that the protection is in s 658A(2): they are protected only if they were the administrator before “the time when the
charge is treated as arising” because they are then not a “relevant person”.
We consider this in more detail.
Construction of s 658A(2)
95. Mr Nawbatt says
that Mr Sykes’ interpretation makes s658A(2) otiose because his interpretation
of s658A(1)(a) and (b) is that current and future administrators must be
individually assessed. So what does s658A(2) achieve? If every reference to
“relevant person” was exchanged for “administrator” in s658A(1), s 658(2) would
on the appellant’s reading be unnecessary. On the contrary, says Mr Nawbatt, Mr
Sykes’ reading is wrong and the purpose of s658A(2) is to avoid fixing a
retired administrator with liability under the assessment because the single
assessment applies to all administrators.
96. We agree with Mr
Nawbatt that the appellant’s reading of s 658A(1) and (2) does not make sense.
The section is overly complex to achieve what the appellant contends, and
s658(2) would be otiose if the assessments had to be individual.
97. HMRC’s seems to
be a more sensible reading of 658A(1)(b) and 658(2) as it means all
administrators from the moment the deemed charge arises onwards are liable, as
the charge arises during their control of the funds, although the assessment
must be in the name of the administrator at the time of the assessment. The
Appellant’s reading would not only make 658(2) otiose because no administrator
at a time before the assessment could be liable, but would exempt from
liability the administrator who allowed the event which gave rise to the charge
if subsequently he retired.
98. Mr Sykes’ reply
to this is that why would Parliament intend the retired administrator to have
liability as control of the assets in the Scheme would have passed to the new
administrator. We cannot agree. It seems logical that Parliament would not
intend an administrator to have liability for the tax if it was an
administrator before the events which gave rise to the charge took place (and
s658(2) is apt to provide this.) We see no reason why Parliament would choose
to exempt an administrator who was administrator at the time of the events
giving rise to the charge just because the assets may have passed to a new
trustee particularly when the more likely scenario is that the assets will have
left the scheme altogether. We will not give a strained interpretation to
s658A to arrive at such an unlikely result.
Parliament’s intent
99. Mr Nawbutt’s
view is that we do not have to look at Parliament’s intent: the statutory language is clear. We agree, for the reasons given above, that HMRC’s
interpretation is linguistically most straightforward and that only a single
assessment is required on the administrator at the time of the assessment and
that is sufficient to fix with liability all administrators at the time the
charge is deemed to arise and at any time since that date.
100.But if there
were any ambiguity in the meaning of s658A HMRC, we would resolve the point in
HMRC’s favour based on Parliament’s likely intent. Because if the Appellant
was right, a pension fund could endlessly avoid paying an assessment by
appointing new administrators each of whom would have to be assessed.
Ultimately HMRC would be out of time to assess and the final administrator
would be scot free. This cannot have been intended by Parliament.
Out of time to assess
101.Mr Sykes
points out that the previous administrators would still be liable under the
assessments raised against them: HMRC do not have to follow the scheme
assets. While it is clear the intent of Parliament that relevant persons other
than those that retired before the charge remain liable, we are not at all
persuaded that Parliament did not also intend liability to follow the scheme
assets. Otherwise trustees with no assets could be assessed while the current
trustee with the assets (if any) could be out of time to be assessed. This
simply cannot have been intended. Mr Sykes disputes this on the basis that any
existing relevant person who has been assessed would be foolish to transfer the
assets to a new administrator without an indemnity: but that is not
necessarily the case if the assessed person has no assets or is not in the UK. Our conclusion is that Parliament is much more likely to have intended that past and
present administrators could be jointly and severally fixed with liability for
the tax.
Imposition of liability on
employer
102.Even more to
the point, Mr Sykes’ interpretation would seem to render s 606 otiose in
respect of such assessments. This section provides that in certain
circumstances, including where the administrator is in default, the employer
becomes liable for the tax for which the administrator is liable:
“606 (1) This section applies in relation to a
retirement benefits scheme if at any time –
(a) …
(b) …
(c) the person who is, or all of the persons who
are, the administrator of the scheme is or are in default for the purposes of
this section.
(2) If the scheme is a trust scheme, then –
(a) …
(b) if…subsection … (c) above applies and at the
time in question the condition mentioned in subsection (3) below is not
fulfilled, the employer shall at that time be so responsible and liable.
(3) The condition is that there is at least one
trustee of the scheme who –
(a) can be traced,
(b) is resident in the United Kingdom, and
(c) is not in default for the purposes of this
section.
……
(11) A person is in default for the purposes of this
section if –
(a) ….
(b) he has failed to pay any tax due from him by
virtue of this Chapter [which includes s 591C] …
and … the Board consider the failure to be of a
serious nature.”
In other words, the statutory scheme is that the
administrator is liable for the tax but if the administrator does not pay it,
the employer who sponsored the Scheme becomes liable. But if the administrator
is not “in default” the employer has no liability. So, say HMRC, it cannot have
been intended that there could be a tax liability arising on a scheme but at
the same time the current administrator would be out of time to be assessed for
it because then that administrator could not be “in default” and s606 could not
be used.
103.In his
further submissions after the hearing, Mr Sykes’ said he thought that his
interpretation did not make s606 otiose. The administrator at the time of
the charge could be assessed, even if there was later a new administrator
who was out of time to be assessed. This original (but now retired
administrator) would have been “in default” if it did not pay the assessment so
the employer would become liable under s606.
104.However we do
not consider that this is an answer. Section 606(2)(b) refers to the employer
being liable only “at that time” referring to the time when the administrator
is in default. Our interpretation is that as soon as a new administrator, who
was not in default, was appointed the employer’s liability would cease. This is
because “at that time” the original administrator is a relevant person for
s658A but is no longer the administrator so their default becomes immaterial.
Nor is it clear the original administrator would have been “in default” if the
assessment was under appeal, as in this case.
105.In
conclusion, we find Mr Sykes’ interpretation of s 658A would make it impossible
for HMRC to assess the liability arising under s 591C if new administrators
were appointed to the fund after the time limits for assessment expired and
that would also mean that the liability could not be passed to the sponsoring
company under s606. Such an interpretation cannot have been intended by Parliament.
Trusts have no independent
legal existence
106.HMRC’s
interpretation on the other hand is that s658A ICTA is intended to recognise
and deal with the difficulty that a trust does not have a legal existence
independent of its trustees. The trust itself (unlike a company) cannot be
assessed. Only its trustees can be assessed. Yet trustees can change. The
purpose of s658A is to do what cannot be done: to assess the trust. It
achieves this by an assessment on the administrator at the time of the assessment,
providing that future administrators assume responsibility for that assessment,
and that administrators prior to the events giving rise to the charge are never
liable.
107.We agree with
Mr Nawbatt that it is the scheme of the legislation that on becoming
administrator the new administrator becomes responsible for the scheme’s
affairs and liable to discharge its accumulated liabilities. It was not
intended by Parliament that changing administrator would relieve the fund of
liability to pay an assessment to tax under s 658A.
Decision
108.Our
conclusion is that there is nothing in the self-assessment provisions or s7(9)
of TMA that does or could override the obvious inference from s 658A ICTA that
current and future administrators are jointly and severally liable for the tax
assessable under that section.
109.In our view
the Appellant, as a relevant person “at a time subsequent” to the time at which
the charge arose, is liable to the charge to tax under s658A(2). HMRC cannot
enforce this liability without an assessment but an assessment “in the name of
the administrator of the scheme” at the time of the assessment is a valid
assessment. There is no need for the assessment to be in the name of the
Appellant.
110.The
assessment was raised in the name of the administrator of the Scheme on 27 July
2000 against Louvre Trustees Limited. The Appellant can appeal this under s31
TMA because it is a person affected by it. It is indeed liable to pay it
(should it otherwise be valid). It makes no difference that the Appellant was
not in existence at the date the assessment was issued.
The wrong year issue
111.Both
assessments, irrespective of the issue of whether the first was in the name of
the right person or whether the second was out of time, were, say the
Appellant, in respect of the wrong year. Both were in respect of the tax year
to 5 April 2001: in the Appellant’s opinion they should have been in respect
of the tax year to 5 April 1997 which was the tax year in which
(retrospectively) the scheme lost its approval.
An assessment must be for the right year
112.Clearly the
date of an assessment is the date the assessment is raised and may be
completely different to the year of assessment. The question is what is a
“year of assessment”? There was no statutory definition at the time. Why does
it matter? The Court of Appeal, in a decision binding on us, have ruled in Baylis
v Gregory [1987] STC 297 per Slade LJ that HMRC must specify the
year of assessment on an assessment and they must get it right:
[324d-e] “To sum up, however, in my judgment,
neither s 114 nor any other statutory provision provides an escape route for
the Revenue if they issue an assessment for the wrong fiscal year. This is
something they must get right.
For all these reasons, I think that the assessment
made against the trustees cannot be treated as an assessment for the year
1975-76. It is common ground that, if it is to be regarded as an assessment
for 1974-75, it can give rise to no legal liability on the part of the
trustees.”
113.The reason
for Slade LJ’s decision was that s 113(3) TMA requires an assessment to be in
the form prescribed by HMRC and HMRC prescribes that the year of assessment be
on the notice of assessment. Slade LJ went on to say that s 114 TMA could not
correct an assessment which had the wrong year of assessment on its face.
114.HMRC do not
dispute that an assessment must specify the correct year of assessment.
115.The year of
assessment is also important because it is from then that time limits start to
run and because it is from then that interest starts to run.
What is the right year of assessment?
116.It was not in
dispute between the parties that the liability to tax (if any) on cessation of
approval was provided for by section 591C ICTA which reads as follows:
“(1) Where an approval of a scheme to which this
section applies ceases to have effect……, tax shall be charged in accordance
with this section.
(2) The tax shall be charged under Case VI of
Schedule D at the rate of 40 per cent on an amount equal to the value of the
assets which immediately before the date of the cessation of the approval of
the scheme are held for the purposes of the scheme (taking that value as it
stands immediately before that date).
(3) Subject to section 591D(4), the person liable
for the tax shall be the administrator of the scheme….
117.Section 591D
contains supplementary provisions and sub-paragraph (7) provides the definition
of ‘ceasing 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 591(A(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.”
Meaning of “where”
118.Mr Sykes says
that the “where” used at the start of s591C(1) refers to “whenever” and he
cites Harman LJ in Davies v Davies, Jenkins & Co Ltd 44 TC 273 at
283H. In that case Harman LJ was construing a section which read:
“….where [an English trading concern] has
a deficit for tax purposes during any accounting period of [that concern]
and receives a subvention payment in respect of that period from an
associated company [trading in England] having a surplus for tax purposes in
the corresponding period, then in computing for the purposes of income tax the
profits or gains or losses of those companies the payment shall be treated as
trading receipt receivable by the one company on the last day of the accounting
period during which it has that deficit, ….”(our emphasis)
119.The argument
in that case was that the company was not entitled to the relief provided for
because it did not receive the subvention payment until after the period in
which the deficit occurred. The Court of Appeal decided that the section only
required the deficit, not the receipt of the subvention payment, to arise in
the accounting period:
“(page 283H)…I think that ‘receives’ there means
nothing in respect of time: it is not the present tense in the temporal sense
at all. You might as well say ‘it has received’ or you might easily say ‘it
shall receive’. It is ‘whenever it receives’ – ‘where’ means
‘whenever’; and where a company has plied its trade in England and has made its deficit during a given accounting period [it is entitled to the relief]”
120.Mr Sykes says
that s 591C(1) ICTA gave “where” the meaning of “whenever”. He says that in
this case the ‘whenever’ is 5 November 1996 because that is the date the
approval was deemed to cease to have effect. Therefore, it is the Appellant’s
case that the correct year of assessment was 1996/1997.
121.We cannot
agree. In Davies v Davies, Jenkins & Co Ltd, Harman did not use the
“whenever” meaning to indicate a particular date, rather the opposite. He
employed it more with the meaning “at any time”. “Whenever” or “if at any
time” could be used in substitution for “where” in that part of s 591C without
changing its meaning, but “where” could not be read as “on the date that
approval is deemed to be withdrawn” without changing its meaning. If
Parliament had meant “where” to be read as “on the date on which approval was
deemed to be withdrawn tax shall be deemed to be chargeable….” it could have
said as much. It did not.
122.As we have
said, the “where” in s 591C(1), is used in the sense of “whenever” and it is
not used in the sense of intending to convey a specific date. Harman LJ used
the “whenever” in the sense of a continuing present tense or as in “if at any
time”. On the other hand, s 591C(2) is clearly about a specific date: it is clearly intended to mean that the tax charge is on the value of the assets immediately
before the deemed date of loss of approval. So there is no reason to suppose
that the drafter of s591C(1) necessarily meant the same date in the two
subsections.
Meaning of “construed accordingly”
123.In support of
its case that the year of assessment was 1996/97, however, the Appellant says
it is clear that the charge to tax is intended to arise on the value of the
assets the day before the event which causes the cessation (in this case 4
November) Otherwise charging tax would be pointless as the most likely event is
the transfer of assets out of the fund. So the “date of the cessation of the
approval” is clearly the date of the event which causes the cessation (ie 5
November 1996 in this case).
124.Building on
this, it is the Appellant’s case that therefore it would be very odd if for s
591C(2) “the date of cessation of the approval” meant a different date to the
one meant by the phrase “where an approval of a scheme…ceases to have effect”
under s 591C(1). Both must mean 5 November 1996 says the Appellant. In any
event, says Mr Sykes, this is explicitly the case because s591D(7) says so
because it says “any reference in section 591C to the date of the cessation of
the approval of the scheme shall be construed accordingly.” . Mr Sykes’ case
is that a reference to an approval of a scheme ceasing to have effect is the
same as the approval of the scheme being withdrawn and the same as the date of
cessation of approval of the scheme.
125.Succinctly
the Appellant’s case is that the liability to tax arose in 96/97 and because
the assessment is for 00/01 it is for the wrong year; but if they are wrong on
this and the assessment is for the right year, it is necessarily in the wrong
amount. It should be nil as there were no assets in the fund on 18 April 2000.
126.HMRC’s case
is that the date of the tax liability is distinct from the date on which
withdrawal of approval was deemed to take effect and they believe this
interpretation is consistent with what Sir Edward Evans-Lombe said in Thorpe
[2008] STC (Ch D) 2107. The Judge was clearly aware that the assessment in
that case was raised in respect of the year in which the notice was given and
did not suggest that it was thereby invalid. Similarly, Lloyd LJ was aware of
the date of the years of assessment in the Court of Appeal hearing in the same
case: see Thorpe [2010] STC 964 at page 968 paragraph 16. However, Mr
Nawbatt accepts (rightly) Mr Sykes’ point that the High Court and Court of
Appeal were not asked to rule on this point and did not expressly consider it: their decisions are therefore not authoritative on this point.
Our conclusion
127.There is a
clear distinction in section 591B(1) ICTA and the following sections, to the
date on which notice of withdrawal of approval is actually given and the date
from which the withdrawal of approval is effective.
128.Which date is
intended by the phrase in the charging section 591C(1) “where an approval of a
Scheme…ceases to have effect”? The answer appears to be in s 591D(7) which
states that the reference in s591C(1) to an approval of a scheme ceasing to
have effect is (in so far as s591B withdrawals are concerned) “the approval of
the scheme being withdrawn under section 591B(1)”.
129.The
Appellant’s view is that this has to be interpreted as being the date from
which the withdrawal was effective because the last part of 591D(7) says a
reference to the date of the cessation of the approval “shall be construed
accordingly”. So Mr Sykes’ view is that “construed accordingly” means the date
on which an approval “ceases to have effect” must be the same date on which
approval is withdrawn. And he further reasons that this must be the deemed date
of withdrawal because otherwise s 591C(2) makes no sense (and if he is wrong,
then there is nothing to tax).
130.But this
depends what is meant by “construed accordingly” in s 591D(7). Does it mean
that the one date must be construed to be the same as the other date or does it
simply mean that the date of cessation of approval must be construed according
to the section numbers referred to as set out in that sub-paragraph (see
paragraph 117 above where the provision is set out in full.) In the case of a
withdrawal of approval by HMRC, as in this case, this would mean that “the date
of cessation of the approval” must be construed according to s591B(1). We
consider the latter construction has to be right because the drafters would
otherwise have simply said the date of ceasing to have effect was the same date
as the date of cessation. Instead they used the words “construed accordingly”
to deal with the fact that there were different methods under different
sub-sections for losing approval.
131.S 591D(7)
dealt with three different ways a scheme became unapproved and the dates for
loss of approval were not the same in all three. In particular, cessations
under S591A(2) and 591B(2) occurred automatically on a specified date or event
and did not require the exercise of a discretionary power by HMRC. For
s591D(7)(a) & (c) there was only one date: the date of cessation of
approval. It makes no difference for these two sub-sections whether “construed
accordingly” means the same date or in accordance with the specified section.
They are the same.
132.But it makes
a difference for s591D(7)(b) and discretionary withdrawal of approvals: because if “construed accordingly” means ‘construed in accordance with s591B(1)’, then it
brings in the two dates mentioned in that section: the date on which notice of
withdrawal is actually given and the date from which such withdrawal is
effective. So in using “construed accordingly” the draftsman intended to
recognise that at least for s591(B)(1) the date of cessation of approval was
not necessarily the same as the date of cessation.
133. Consistent
with our view the drafter must have meant separate dates, S 591C(1) goes on to
provide that “tax shall be charged”. It does not say “tax shall be deemed to have
been charged”. Tax is not retrospective without clear words and there is no
suggestion here that the tax charge is imposed retrospectively. In 1998 and
1999 the trustees were not in fact liable to be assessed to this tax: the charge could not arise until HMRC took the decision to withdraw approval in 2000.
Time-limits
134.In support of
this conclusion HMRC contended that it is the day on which HMRC notifies
withdrawal of approval which is the relevant date for s 34 TMA (the six year
time limit) which provided:
“(1) …an assessment to income tax …may be made at
any time not later than five years after the 31st January next
following the year of assessment to which it relates.”
135.HMRC says
this shows that the Appellant’s interpretation of the legislation is absurd
because, if the year of assessment was the year of the deemed withdrawal of
approval, it would be possible for the time limit for making an assessment to
have expired before the tax liability arose. We note that this could only be
the case where HMRC decided to withdraw approval more than 6 years after the
event which gave rise to the loss of approval.
136.The Appellant
says that Parliament cannot have intended the statute to be read the way HMRC
contends (ie that the year of assessment is the year in which the cessation of
approval is notified rather than the year to which it is backdated) because
that would allow HMRC make an assessment under s 591C without any regard for
time limits. They could go back indefinitely to withdraw approval.
interest
137.Liability to
interest arises under s 86(1) TMA and runs from the relevant date and the
relevant date runs from a date calculated by reference to the “year of
assessment” (see s 59B TMA).
138.In its
further submissions the Appellant raised the point that, in its opinion, if
HMRC are right and the year of assessment is the year in which notice of
withdrawal was actually given, interest on the tax assessed only runs from
that year and not from the deemed date of the charge. HMRC agree with this: they consider interest would only run from the year in which approval was actually withdrawn.
Decision
139.We have
concluded (see paragraph 133 above) that on a proper construction of s591C(1),
where approval ‘ceases to have effect’ is a reference to a decision by HMRC at any
time to remove approval, whereas the reference in (2) to the ‘date of the
cessation of the approval’ refers to the actual date from which withdrawal of
approval is deemed to be effective.
140.However, even
if we had concluded that the meaning of “ceases to have effect” was ambiguous,
on a purposive construction we would arrive at the same conclusion. It must
have been intended that s591C(1) referred to the actual date and not the deemed
date of withdrawal of approval so that the year of assessment would be that in
which the actual date fell because otherwise, as HMRC said, they could be out
of time to assess before the event (the decision to withdraw) had taken place.
It also makes much more sense for interest to run the actual date of withdrawal
because otherwise interest would be deemed to run during a time when the
trustees did not actually have any tax liability. As for the Appellant’s point
that that allows HMRC to withdraw approval at any time then that appears to be
right and, certainly, Schedule 36 paragraph 5 Finance Act 2004 appears to
anticipate that HMRC’s ability to withdraw approval is unrestricted in time.
We would expect that were HMRC to fail to act on information they possessed for
an unreasonable length of time, this might lead to judicial review.
141.In
conclusion, we consider that s 591D(7)(b) refers to the time the withdrawal
actually takes place being the time at which it is notified, which in this case
was 19 April 2000. The “construed accordingly” is a reference, so far as (b)
is concerned to 591B(1), which brings in, for the “date of cessation of the
approval” the date of deemed cessation of approval. The “where” in s591C(1)
refers to “whenever” notice to withdraw approval is given but the date of
cessation of approval in s 591C(2) is the deemed date of cessation.
142.The
assessments were therefore both for the correct year of assessment of 2000/01.
The out of time issue
143.As we have
concluded that the 2000 assessment was in respect of the correct year of
assessment and enforceable against the current administrator, the question of
whether the 2007 assessment was out of time is irrelevant. Apart from with
respect to s34 TMA, the issues outlined below were not argued before us and
normally we would ask for further representations on the matter before reaching
a concluded view. However, as we have already determined the appeal against
the Appellant we did not seek to put either party to the additional expense of
consideration of these issues, but record our views in case the matter goes higher.
144.At the time
of both assessments, s34 TMA provided the time limit in which an assessment
must be raised as follows:
“(1) Subject to the following provisions of this
Act, and to any other provisions of the Taxes Acts allowing a longer period in
any particular class of case, an assessment to income tax or capital gains tax
may be made at any time not later than five years after the 31st
January next following the year of assessment to which it relates.”
145.The Appellant
submitted that the 2007 assessment was out of time, which would be true if we
had found the year of assessment to be 1996/97. However, we concluded for the
reasons explained above that the year of assessment was 2000/2001. The 31st
January next following the year of assessment was therefore 31 January 2002.
Five years later was 31st January 2007 and so an assessment for
2000/01 should have been raised no later than 31 January 2007. The 2007
assessment was raised on 22 January 2007 and was therefore in time.
146.However,
although this point was not raised at the hearing, at the date of the 2007
assessment, s591C(1), which was the section under which the assessment had been
raised, had been repealed the previous April. Does this affect the validity of
the assessment?
147.There are
saving provisions in Schedule 36 paragraph 5 of the Finance Act 2004. These
are lengthy and we do not set them out in full. In brief, paragraph 1 provides
that various pension schemes, including a retirement benefits scheme, which was
immediately before 6 April 2006 approved under ICTA would be deemed to be
registered as a scheme under the new pensions legislation. This did not apply
to the Scheme because its approval had ceased in 2000.
148.Paragraph 2
of the saving provisions imposes a 40% charge on an approved retirement
benefits scheme that opts out of registration under the new provisions: but contains no provisions to deal with a retirement benefits scheme which had lost its
approval prior to 6 April 2006. The other provisions similarly do not deal
with a retirement benefits scheme which lost approval before 6 April 2006.
Paragraph 5 allows a retrospective withdrawal of approval after 6 April 2006 as
long as the deemed date of cessation of approval is before that date.
149.We find there
is nothing in Schedule 36 of the Finance Act 2004 to preserve a power for HMRC
to make an assessment under a provision that was repealed by that Act.
However, the Interpretation Act 1978 provides:
“16
General savings
(1)
Without prejudice to section 15, where an Act repeals an enactment, the repeal
does not, unless the contrary intention appears,—
(a)
…..
(b)
…..
(c)
affect any right, privilege, obligation or liability acquired, accrued or
incurred under that enactment;
(d)
affect any penalty, forfeiture or punishment incurred in respect of any offence
committed against that enactment;
(e)
affect any investigation, legal proceeding or remedy in respect of any such
right, privilege, obligation, liability, penalty, forfeiture or punishment;
and
any such investigation, legal proceeding or remedy may be instituted, continued
or enforced, and any such penalty, forfeiture or punishment may be imposed, as
if the repealing Act had not been passed.”
150.We consider
that an assessment must be a legal proceeding. Under s 16 a legal proceeding
in respect of a liability incurred under ICTA can be instituted and enforced as
if the Finance Act 2004 had not been passed. In our opinion this means that
HMRC were able to validly assess the Appellant on 22 January 2007 despite the
earlier repeal of the provisions under which the assessment is raised. If we
had not already found that the 2000 assessment was valid and can be enforced
against the Appellant, we would have found that the 2007 assessment was valid
and could be enforced against the Appellant.
151.We dismiss
the appeal for the reasons set out above.
Conclusions on lead issues
152.From the
above, we summarise our conclusions on the issues for which this was a lead
case:
(1) The relevant year of assessment of the charge arising
under section 591C of the Income and Corporation Taxes Act 1988 was the year
ending 5 April 2001;
(2)(i) The tax charged under s591C ICTA 1988 on the
administrator of a scheme, and treated as charged on every relevant person
under s658A ICTA 1988, can be recovered in full from any single relevant person
(unless they ceased to be a relevant person before the events in question) on
the basis that the assessment of only a single relevant person in the name of
the administrator of the scheme establishes joint and several liability of all
relevant persons.
2(ii) The liability which is joint and several extends to
relevant persons not in existence at the time of the assessment.
153.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.
Barbara Mosedale
TRIBUNAL JUDGE
RELEASE DATE: 28 October 2011
