Pension scam – unauthorised payments surcharge upheld
In another sad pension scam case, the First-Tier Tribunal has upheld HMRC’s imposition of unauthorised payments surcharges on two directors of a company whose own pension pots were transferred to a fraudulent scheme and then loaned to the company to be used as working capital.
Mr and Mrs O’Mara (the appellants) were directors of a loan brokerage, Biz-Works UK Limited, which specialised in providing bridging finance/short-term loans to professional property investors. They encountered a financial adviser (since disqualified from acting as a company director) which promoted a questionable pension scheme. They were persuaded that they would be able to access their pension pots to provide working capital to Biz-Works by entering into an arrangement through which their existing pension pots with reputable companies were to be transferred to “Bespoke Pension Trust” and then loaned to Biz-Works, after payment of a 17% fee to the adviser. The appellants also promoted this financial arrangement to their own clients. No proper loan or trust documentation was ever produced and, needless to say, the transactions constituted unauthorised payments and HMRC duly raised unauthorised payment charges of 40% and unauthorised payment surcharges of 15%.
The appellants challenged the unauthorised payment surcharges (lately coming to accept that they had no argument that the payments could possibly be authorised) on the grounds that it would not be “just and reasonable” (as required by the tax legislation) to impose these surcharges.
The Tribunal ruled against them for reasons including the following:
- The appellants knew that the purpose of the scheme entered into was to benefit from the value of their pensions prior to retirement age in the form of loans to their company
- The intention behind the scheme, and the intention behind the unauthorised payments, even if not held by the appellants, was that pensions were to be liberated and tax payments were to be avoided
- While the Tribunal was prepared to accept that the appellants honestly but mistakenly believed they were not avoiding tax charges properly due and were entering into a scheme to receive authorised payments, the focus of the appellants was the receipt of their funds and obtaining loans for their company. The propriety of the scheme was not their focus, nor their principal motivator
- The appellants did not act reasonably in relation to entering into the scheme, nor receiving the unauthorised payments
- The 15% surcharge is not disproportionate, unjust or unreasonable in principle, nor as applied on the facts of the appellants’ case
Comment
Along with the Browne case (see Pension Bulletin 2016/36) we now have quite a useful body of judicial guidance on when it will be just and reasonable for HMRC to impose a surcharge – the Tribunal will look at all the facts, including the taxpayer’s conduct.
The case is also notable as an example of a scam targeted at business people rather than random members of the public.
Protecting those close to retirement judged to be discriminatory
Changes to the judicial pension scheme that protected the benefits of members close to retirement have been deemed age discriminatory in an employment tribunal judgment released last week.
Younger judges who were members of the judicial pension scheme were forced to transfer to a new, less generous, pension scheme as part of a Government cost-cutting exercise. However, members closer to retirement were allowed to remain in the original judicial pension scheme either until retirement or for a tapered period.
Pension schemes often adopt practices that are, at face value, age discriminatory. This is allowed if either there is an explicit exemption contained within legislation or the practice is objectively and reasonably justified by a legitimate aim.
The aim in this case was stated as protecting older members because “scheme members closest to retirement have less time to make the necessary lifestyle and financial adjustments” caused by the changes. The employment tribunal found that was not in itself a legitimate reason for age discrimination, largely because an aim which intends to treat a specific group (in this case those close to retirement) more favourably than others without further rational explanation cannot be legitimate.
Given the changes had a disproportionate impact on female and minority ethnic judges, they were also found to be sex and race discriminatory.
Comment
Many public sector pension schemes (and potentially some in the private sector) have implemented changes along similar lines, with the benefits for those closest to retirement given greater protection than the benefits for younger members. The defence against claims of discrimination in most of those is likely to have been that they are objectively and reasonably justified by a legitimate aim (protecting vulnerable members close to retirement).
This employment tribunal verdict throws doubt on the validity of that justification and may open the door for a raft of future discrimination claims.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
