Introduction

Allan v. Revenue & Customs is a pivotal case adjudicated by the Upper Tribunal (Tax and Chancery Chamber) on January 23, 2015. The appellant, Mark Allan, sought to challenge a tax assessment imposed under section 386 of the Income Tax (Earnings and Pensions) Act 2003 (s.386 ITEPA). This assessment arose from his employer's contribution of non-cash assets to an unapproved pension scheme on his behalf, which the employer deducted from its taxable income. The core legal contention centered on whether s.386 ITEPA could be construed as inapplicable under the Human Rights Act 1998 (s.3 HRA) due to a potential infringement of Article 1 of Protocol 1 to the European Convention on Human Rights (A1P1).

Summary of the Judgment

The Upper Tribunal reviewed Allan's appeal against the First-tier Tribunal's decision to strike out his case under Rule 8(3)(c) of the Tribunal Procedure Rules 2009. Allan argued that the tax assessment infringed his human rights by unjustly taxing contributions made by non-cash assets. He further contended that the Court of Appeal's decision in Irving v HMRC was per incuriam, failing to consider A1P1 and s.3 HRA. The Tribunal ultimately sided with HMRC, affirming that the FTT correctly struck out the appeal due to the lack of a real prospect of success. The Tribunal found the legislation compliant with A1P1, dismissing Allan's arguments as insufficient to overturn established precedents.

Analysis

Precedents Cited

The judgment heavily referenced Irving v HMRC [2008] EWCA Civ 6, wherein the Court of Appeal held that contributions of non-cash assets to a pension scheme are taxable under the relevant income tax provisions. The Upper Tribunal upheld this interpretation, emphasizing the broader legislative context that does not support Allan's narrower construction. Additionally, cases such as R.D. v IRC and R.Sz. v Hungary were discussed to illustrate the high threshold for overturning tax legislation under A1P1. The Tribunal distinguished Allan's case from these precedents, noting the absence of arbitrary or discriminatory application in s.386 ITEPA.

Legal Reasoning

The Tribunal dissected the application of s.3 HRA, which mandates that legislation be interpreted in a manner compatible with Convention rights where possible. Allan's interpretation sought to exclude non-cash asset contributions from being taxable under s.386 ITEPA, invoking A1P1. However, the Tribunal found that such an interpretation would introduce an arbitrary distinction between cash and non-cash contributions, contrary to established case law like Irving. Furthermore, the Tribunal concluded that the tax measures in question did not violate A1P1, as they were non-discriminatory, proportional, and accompanied by appropriate relief mechanisms under s.392 and exemptions under s.396 ITEPA.

Impact

The decision reinforces the binding nature of the Irving precedent, solidifying the stance that non-cash pension contributions are taxable under current tax legislation. It underscores the judiciary's deference to clear legislative intent in tax matters, especially concerning human rights considerations. Future cases involving similar tax assessments will likely follow this precedent, making it more challenging to argue for exemptions based on the nature of asset contributions without significant legislative changes.

Complex Concepts Simplified

Section 386 of the Income Tax (Earnings and Pensions) Act 2003 (s.386 ITEPA)

This section stipulates that any sums paid by an employer to an unapproved pension scheme on behalf of an employee are taxable as employment income. It includes both cash and non-cash contributions, such as asset transfers like Treasury stock.

Human Rights Act 1998 (s.3 HRA)

Section 3 mandates that, as far as possible, UK legislation must be interpreted to be compatible with the European Convention on Human Rights. In this case, Allan argued that s.386 ITEPA's application to non-cash contributions infringed his right to peaceful enjoyment of possessions under A1P1.

Article 1 of Protocol 1 to the European Convention on Human Rights (A1P1)

A1P1 protects individuals' right to peacefully enjoy their possessions, prohibiting deprivation of possessions except in the public interest and according to the law. Taxation measures can engage A1P1 if they significantly interfere with this right.

Per Incuriam

A judgment is said to be per incuriam if it was given in ignorance of a relevant statutory provision or precedent, effectively rendering it flawed. Allan claimed that Irving was decided per incuriam for not considering A1P1 and s.3 HRA.

Conclusion

The Upper Tribunal's decision in Allan v. Revenue & Customs reaffirms the application of s.386 ITEPA to non-cash pension contributions, aligning with established legal precedents. It illustrates the judiciary's stringent approach to overturning tax legislation on human rights grounds, emphasizing proportionality and non-discrimination. This judgment serves as a significant reference point for future tax-related legal challenges, highlighting the limited scope for contesting tax assessments based on the nature of employer contributions to pension schemes.