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relevant legislation
relevant legislation
This appeal is confined to issues of statutory construction, so it is helpful to begin by setting out the legislation relevant to the appeal. The provisions set out below are those which were in force for the periods relevant to this appeal, and so far as relevant to the issues in this appeal.
Certain unauthorised payments made by a registered pension scheme are chargeable under section 208 Finance Act 2004 (“FA 2004”), which provides as follows:
208 Unauthorised payments charge
A charge to income tax, to be known as the unauthorised payments charge, arises where an unauthorised payment is made by a registered pension scheme.
The person liable to the charge—
in the case of an unauthorised member payment made to or in respect of a person before the person's death, is the person,
in the case of an unauthorised member payment made in respect of a person after the person's death, is the recipient, and
in the case of an unauthorised employer payment, is the person to or in respect of whom the payment is made.
If more than one person is liable to the unauthorised payments charge in respect of an unauthorised payment, those persons are jointly and severally liable to the charge in respect of the payment.
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The rate of the charge is 40% in respect of the unauthorised payment.
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An unauthorised payment may also be subject to—
the unauthorised payments surcharge under section 209, and
the scheme sanction charge under section 239.
An unauthorised payment is not to be treated as income for any purpose of the Tax Acts.
In addition to the 40% charge under section 208, an additional 15% charge can arise under section 209 FA 2004:
209 Unauthorised payments surcharge
A charge to income tax, to be known as the unauthorised payments surcharge, arises where a surchargeable unauthorised payment is made by a registered pension scheme.
“Surchargeable unauthorised payments” means—
surchargeable unauthorised member payments (see section 210), and
surchargeable unauthorised employer payments (see section 213).
The person liable to the charge—
in the case of a surchargeable unauthorised member payment made to or in respect of a person before the person's death, is the person,
in the case of a surchargeable unauthorised member payment made in respect of a person after the person's death, is the recipient, and
in the case of a surchargeable unauthorised employer payment, is the person to or in respect of whom the payment was made.
If more than one person is liable to the unauthorised payments surcharge in respect of a surchargeable unauthorised payment, those persons are jointly and severally liable to the surcharge in respect of the payment.
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The rate of the charge is 15% in respect of the surchargeable unauthorised payment.
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Section 255 FA 2004 provides for the making of regulations, as follows:
255 Assessments under this Part
The Board of Inland Revenue may by regulations make provision for and in connection with the making of assessments in respect of—
the unauthorised payments charge,
the unauthorised payments surcharge,
liability to the lifetime allowance charge under section 217(2) (person to whom lump sum death benefit paid),
the scheme sanction charge,
liability under section 272 (trustees etc. liable as scheme administrator),
liability under section 273 (member liable as scheme administrator), and
liability under section 394 of ITEPA 2003 (benefit under employer-financed retirement benefits scheme: charge on responsible person).
The provision that may be made by the regulations includes (in particular) provision for the charging of interest on tax due under such assessments which remains unpaid.
The regulations may, in particular—
modify the operation of any provision of the Tax Acts, or
provide for the application of any provision of the Tax Acts (with or without modification).
We turn now to the collection and assessment provisions which are said by HMRC to apply to amounts chargeable under section 208 or section 209.
Sections 208 and 209 both describe a “charge to income tax”. For the tax year 2009/10, a general framework for charging income tax was set out in sections 3 and 4 of the Income Tax Act 2007 (“ITA 2007”), which provide as follows (emphasis added to original):
3 Overview of charges to income tax
Income tax is charged under–
Part 2 of ITEPA 2003 (employment income),
Part 9 of ITEPA 2003 (pension income),
Part 10 of ITEPA 2003 (social security income),
Part 2 of ITTOIA 2005 (trading income),
Part 3 of ITTOIA 2005 (property income),
Part 4 of ITTOIA 2005 (savings and investment income), and
Part 5 of ITTOIA 2005 (miscellaneous income).
Income tax is also charged under other provisions, including–
Chapter 5 of Part 4 of FA 2004 (registered pension schemes: tax charges),
section 7 of F(No.2)A 2005 (social security pension lump sums),
Part 10 of this Act (special rules about charitable trusts etc),
Chapter 2 of Part 12 of this Act (accrued income profits), and
Part 13 of this Act (tax avoidance).
4 Income tax an annual tax
Income tax is charged for a year only if an Act so provides.
A year for which income tax is charged is called a “tax year”.
A tax year begins on 6 April and ends on the following 5 April.
“The tax year 2007-08” means the tax year beginning on 6 April 2007 (and any corresponding expression in which two years are similarly mentioned is to be read in the same way).
Every assessment to income tax must be made for a tax year.
Subsection (5) is subject to Chapter 15 of Part 15 (by virtue of which an assessment may relate to a return period).
The calculation of a person’s income tax liability is dealt with by section 23 ITA 2007, which provides (emphasis added to original):
23 The calculation of income tax liability
To find the liability of a person (“the taxpayer”) to income tax for a tax year, take the following steps.
Step 1
Identify the amounts of income on which the taxpayer is charged to income tax for the tax year.
The sum of those amounts is “total income”.
Each of those amounts is a “component” of total income.
Step 2
Deduct from the components the amount of any relief under a provision listed in relation to the taxpayer in section 24 to which the taxpayer is entitled for the tax year.
See section 25 for further provision about the deduction of those reliefs.
The sum of the amounts of the components left after this step is “net income”.
Step 3
Deduct from the amounts of the components left after Step 2 any allowances to which the taxpayer is entitled for the tax year under Chapter 2 of Part 3 of this Act or section 257 or 265 of ICTA (individuals: personal allowance and blind person's allowance).
See section 25 for further provision about the deduction of those allowances.
Step 4
Calculate tax at each applicable rate on the amounts of the components left after Step 3.
See Chapter 2 of this Part for the rates at which income tax is charged and the income charged at particular rates.
If the taxpayer is a trustee, see also Chapters 3 to 6 and10 of Part 9 (special rules about settlements and trustees) for further provision about the income charged at particular rates.
Step 5
Add together the amounts of tax calculated at Step 4.
Step 6
Deduct from the amount of tax calculated at Step 5 any tax reductions to which the taxpayer is entitled for the tax year under a provision listed in relation to the taxpayer in section 26.
See sections 27 to 29 for further provision about the deduction of those tax reductions.
Step 7
Add to the amount of tax left after Step 6 any amounts of tax for which the taxpayer is liable for the tax year under any provision listed in relation to the taxpayer in section 30.
The result is the taxpayer's liability to income tax for the tax year.
The provisions referred to in Step 7 are set out in section 30 ITA 2007 (emphasis added to original) (Footnote: 1):
30 Additional tax
If the taxpayer is an individual, the provisions referred to at Step 7 of the calculation in section 23 are–
section 424 (gift aid: charge to tax),
section 205 of FA 2004 (pension schemes: the short service refund lump sum charge),
section 206 of FA 2004 (pension schemes: the special lump sum death benefits charge),
section 208(2)(a) of FA 2004 (pension schemes: the unauthorised payments charge),
section 209(3)(a) of FA 2004 (pension schemes: the unauthorised payments surcharge),
section 214 of FA 2004 (pension schemes: the lifetime allowance charge),
section 227 of FA 2004 (pension schemes: the annual allowance charge), and
section 7 of F(No.2)A 2005 (social security pension lump sum).
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The self-assessment process is dealt with in section 9 of the Taxes Management Act 1970 (“TMA 1970”):
9 Returns to include self-assessment
Subject to subsections (1A) and (2) below, every return under section 8 or 8A of this Act shall include a self-assessment, that is to say—
an assessment of the amounts in which, on the basis of the information contained in the return and taking into account any relief or allowance a claim for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; and
an assessment of the amount payable by him by way of income tax, that is to say, the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source and any tax credits to which section 397(1) or 397A(1) of ITTOIA 2005 applies
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(1A) The tax to be assessed on a person by a self-assessment shall not include any tax which—
is chargeable on the scheme administrator of a registered pension scheme under Part 4 of the Finance Act 2004,
(ab) is chargeable on the sub-scheme administrator of a sub-scheme under Part 4 of the Finance Act 2004 as modified by the Registered Pensions (Splitting of Schemes) Regulations 2006, or
is chargeable on the person who is (or persons who are) the responsible person in relation to an employer-financed retirement benefits scheme under section 394(2) of ITEPA 2003.
A person shall not be required to comply with subsection (1) above if he makes and delivers his return for a year of assessment—
on or before the 31st October next following the year, or
where the notice under section 8 or 8A of this Act is given after the 31st August next following the year, within the period of two months beginning with the day on which the notice is given.
Where, in making and delivering a return, a person does not comply with subsection (1) above, an officer of the Board shall if subsection (2) above applies, and may in any other case—
make the assessment on his behalf on the basis of the information contained in the return, and
send him a copy of the assessment so made;
.
(3A) An assessment under subsection (3) above is treated for the purposes of this Act as a self-assessment and as included in the return.
The provision which lies at the heart of this appeal is section 29 TMA 1970, which relevantly states as follows:
29 Assessment where loss of tax discovered
If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—
that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or
that an assessment to tax is or has become insufficient, or
that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.
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Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above—
in respect of the year of assessment mentioned in that subsection; and
in the same capacity as that in which he made and delivered the return,
unless one of the two conditions mentioned below is fulfilled.
The first condition is that the situation mentioned in subsection (1) above is attributable to fraudulent or negligent conduct on the part of the taxpayer or a person acting on his behalf.
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Any reference in this section to the relevant year of assessment is a reference to—
in the case of the situation mentioned in paragraph (a) or (b) of subsection (1) above, the year of assessment mentioned in that subsection; and
in the case of the situation mentioned in paragraph (c) of that subsection, the year of assessment in respect of which the claim was made.