Willey v Revenue & Customs

Factual and Procedural Background

The Appellant is the scheme administrator of a registered pension scheme established for Company A (the Scheme). The dispute arises from an unauthorised employer payment made by the Scheme, specifically a loan of £100,000 made in August 2006 to Company A, which was not secured and did not comply with statutory requirements for authorised employer loans under the Finance Act 2004 (FA 2004). The Appellant was unaware of the payment at the time it was made and subsequently became aware of it during negotiations involving a member of the Scheme. The loan was intended to be regularised by transferring it to a new pension scheme but this did not occur. The loan was repaid with interest in December 2010.

The Appellant failed to submit the required event report notifying HM Revenue & Customs (HMRC) of the unauthorised payment within the prescribed deadline and delegated day-to-day scheme control to another individual. HMRC commenced an enquiry in July 2010, resulting in an assessment of a scheme sanction charge of £40,000 against the Appellant and an unauthorised payments charge of £40,000 against Company A. After Company A paid its charge, the sanction charge on the Appellant was reduced to £15,000. The Appellant appeals the decision to impose the scheme sanction charge.

Legal Issues Presented

1. Whether the Appellant’s liability to the scheme sanction charge under section 239 FA 2004 should be discharged pursuant to section 268 FA 2004 on the grounds that it is not just and reasonable for the Appellant to be liable.
2. Whether the scheme sanction charge is disproportionate or otherwise unlawful, including whether it infringes the Appellant’s rights under Article 1 Protocol 1 and Article 6 of the European Convention on Human Rights.
3. Whether the amount of the scheme sanction charge should be set aside or reduced on the basis that it is wholly unjust and unreasonable.

Arguments of the Parties

Appellant's Arguments

• The loan was made shortly after the introduction of the new regime (A-day), and the Appellant, along with other professionals, was unfamiliar with the new rules and HMRC guidance was incomplete.
• If aware of the intended loan, the Appellant would have advised the trustees of the Scheme about the consequences, likely preventing the unauthorised payment.
• Upon becoming aware, the Appellant took steps to regularise the position by attempting to transfer the loan to a new pension scheme, but this was outside his control.
• The loan was repaid with interest, resulting in no financial loss to the Scheme.
• The scheme sanction charge is effectively a penalty that is wholly unreasonable and unjust in the circumstances.
• The charge leads to double taxation, as the funds repaid to the Scheme could be subject to further unauthorised payment charges, which the Appellant argues is unfair.
• The total 55% charge (40% on the employer and 15% on the scheme administrator) is equivalent to the maximum charge on scheme termination and should not lead to further charges.
• The scheme sanction charge infringes the Appellant’s rights under Article 1 Protocol 1 (peaceful enjoyment of possessions) and Article 6 (right to a fair trial) of the European Convention on Human Rights.

Respondents' Arguments

• The tax charges are designed to protect the tax-relieved funds in pension schemes and ensure they are used for retirement benefits.
• The statutory regime for authorised loans is prescriptive and does not take into account the financial position of the employer; compliance with the terms is mandatory.
• The Appellant failed to have any system in place to identify unauthorised payments, and thus could not reasonably believe the payment was not a scheme chargeable payment.
• The scheme sanction charge is not disproportionate or unjust; it serves as a deterrent against unauthorised payments and protects the pension scheme assets.
• The charge is a tax charge rather than a penalty, and the State enjoys a wide margin of appreciation in imposing such charges.
• The Appellant’s arguments regarding double taxation and human rights claims are not supported by the statutory framework or case law.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal analysed the statutory framework under the Finance Act 2004 governing registered pension schemes, focusing on the rules for authorised and unauthorised payments and the imposition of the scheme sanction charge. The court emphasised the prescriptive nature of the legislation, which does not permit consideration of the financial strength of the employer in determining whether a payment is authorised.

The Tribunal found that the Appellant, as scheme administrator, failed to have adequate systems in place to monitor payments made by the trustees, which meant he could not have reasonably believed the unauthorised payment was not a scheme chargeable payment. This failure was critical in denying relief under section 268 FA 2004.

In considering whether it was just and reasonable to discharge the Appellant from liability, the Tribunal acknowledged mitigating factors such as the timing shortly after the new regime commenced, the Appellant’s efforts to regularise the loan, and the repayment with interest. However, these did not outweigh the failure to have proper systems and the statutory requirements.

Regarding the human rights arguments, the Tribunal noted that the scheme sanction charge is part of a combined 55% tax charge designed to protect pension scheme assets and ensure tax relief is only available for retirement benefits. It found that the charge was not disproportionate or devoid of reasonable foundation, and therefore did not breach Article 1 Protocol 1 of the European Convention on Human Rights. The Tribunal also found no evidence of infringement of the Appellant’s rights under Article 6.

The Tribunal rejected the Appellant’s contention that the charge resulted in double taxation, holding that the legislation does not provide relief in the event of repayment of an unauthorised loan and that the charge serves as a deterrent against unauthorised payments.

Holding and Implications

The appeal is dismissed.

The Tribunal held that the Appellant’s liability to the scheme sanction charge was properly imposed and that there was no basis to discharge or reduce the charge under the statutory provisions or on human rights grounds. The decision confirms the strict application of the Finance Act 2004 regime for unauthorised payments by registered pension schemes and underscores the importance of scheme administrators maintaining adequate systems to monitor scheme payments.

The ruling has direct consequences for the parties by affirming the Appellant’s financial liability. No new legal precedent was established beyond the application of existing statutory and human rights principles in this context.