the Hymanson
decision (64)
by
Roderick Ramage, solicitor, www.law-office.co.uk
(first
published by distribution to professional contacts 21 June 2019)
DISCLAIMER
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does
not accept any responsibility for anything that any person does or does not do
as a result of reading it.
There is a glimmer of hope for the taxpayer, for whom a
few pounds paid by a mistake can result in tens of thousands of pounds in
tax. In the Hymanson case a taxpayer won
what might at the start have seemed a weak case and, to its credit, HMRC appears
to recognise that injustices should be remedied and confirmed its decision not
to appeal against the decision. The case
was about the protection of a lifetime allowance (LTA) but its ramifications
might have a far wider reach.
protection against LTA charge
Taxpayers’ existing rights on the introduction and each
change of the LTA can be protected to some extent against tax charges. For a table of the protections that have been
made available, see my New Year 2017 update at this link: www.law-office.co.uk/art_pension_scheme_tax_allowances.htm.
By the Registered Pension Schemes
(Lifetime Allowance Transitional Protection) Regulations 2011, SI 2011/1752, reg 9, which were the
relevant regulations in Mr Hymanson’s case, an individual to whom a certificate
of protection has been issued must, within 90 days of the occurrence, inform
HMRC when a paragraph 14(4) event had occurred, ie an event, including a
benefit accrual, described in the FA 2011, sch 18 para 14(4). By reg 11 HMRC may, but is not obliged to,
revoke a certificate if it has reason to believe that a paragraph 14(4) event
has occurred.
the Hymanson
decision
Mr Hymanson, who had a protection certificate, was
confused about the advice he had received from his actuary and mistakenly
believed that he did not need to cancel standing orders by which he paid
contribution to three pension plans. It
confused him that his company was permitted to
pay rent to one of his schemes. When
he disclosed this to his actuary, the latter reported it to HMRC, which revoked
Mr Human’s certificate. Mr Hyman
appealed against the HMRC’s decision.
His appeal was heard by the First-tier Tribunal (Tax Chamber) in Hymanson v HMRC [2018] UKFTT 667 (TC), and
the judgement was released on 13 November 2018.
The judge found:
(a)
My Hymans’ mistake was “was a genuine conscious belief
that it would be acceptable to continue making the standing order payments to
the pension schemes”; (69 (in the judgment))
(b)
the consequence of the mistake “is clearly a totally
disproportionate loss of tax”; (73)
(c)
“if Mr Hymanson were to take his case to the High Court then
they would issue an order for rescission of these additional contributions
because of his mistaken belief as to the tax consequences of the payments” (74)
and in view of the seriousness of the consequences, as said in Pitt v Holt,
[2013] UKSC 26, “it would be
unconscionable, or unjust, to leave the mistake uncorrected. The court may and
must form a judgment about the justice of the case.” (61).
(d)
the maxim “that which should be done
should be treated as having been done” led to the position in Lober v HMRC
[2015] UKUT 152, which the judge in that case summarised as ”Thus although the
FTT did not itself have power to order rectification, it could determine that
if rectification would be granted by a court who does have jurisdiction to
grant it, Mr Lobler’s tax position would follow as if such rectification had
been granted.” (78)
(e)
It would be “well within HMRC’s gift” to
assure the pension provider that a return of contributions would not be treated
as unauthorised payments; (86) [This would also be so under the genuine error
principle: see my Summer 2018 update at www.law-office.co.uk/art_genuine_errors_180730.htm.]
and
(f)
HRMC’s decision to revoke Mr Hymans’
certificate was unreasonable because it had not considered the possibility that
the payments of the contributions could be rescinded; (92)
as a result of which
(g)
he directed HMRC to issue a new certificate. (95)
other scenarios
The essential point, underlying both the genuine error
principle and the Hymanson decision, is that, if, because of a mistake or lack
of knowledge through no fault of the taxpayer, there is no contract or
intention on his part and it would be unconscionable for him to be held liable
for the consequences, the mistake should be rescinded, and the tax should follow
the rectified situation. In the case of an LTA certificate the payment of a
trivial contribution to a pension scheme would result it
the entire loss of the LTA protection.
Mr Hymanson’s case was about contributions paid by existing standing
orders. In another case, the mistake
could be the automatic enrolment of a taxpayer into a pension scheme and his
failure to opt-out, because he was never notified of the enrolment and had no
means of knowing of it until after the expiry of the opt-out period.
The Hymanson decision could apply to other
circumstances. Suppose an employer was
ill-informed about the forthcoming money purchase flexibilities brought into
effect on 6 April 2015 and, before that date, agreed to permit an employee to
start to draw his DB pension, while remaining an employee, and to apply part of
his DC pension fund as a tax free lump sum.
The employer mistakenly required the employee to apply the balance of
his DC fund in the purchase of an annuity or to take it as an unauthorised
member payment subject to tax, which the employee did after 6 April 2015, without
being given an explanation of the change in the law permitting flexible
draw-down. The employer then permitted
the employee to continue to pay contributions to the DC scheme, which resulted
in tax charges on the excess of his contribution over his reduced annual
allowance.
The following passages in the Hymanson judgment, adapted
to such circumstances as the above, illustrate how the judgment might be
applied.
(a)
Mr [Smith’s] mistake was “was a genuine conscious belief
that [he was required to draw-down the whole
of the uncrystallised part of his DC fund subject to tax or to suffer
increased tax on it]” (69 (in the judgment));
(b)
the consequence of the mistake “is clearly a totally disproportionate
loss of tax “(73);
(c)
“if Mr [Smith] were to take his case to the High Court then
they would issue an order for rescission of [the draw-down of the balance of
his DC fund] because of his mistaken belief as to [his draw-down obligation
and] the tax consequences [of the payments]” (74) and in view of the
seriousness of the consequences, as said in Pitt v Holt, [2013] UKSC 26, “it would be unconscionable, or unjust, to
leave the mistake uncorrected. The court may and must form a judgment about the
justice of the case.” (61).
etc.
It will be interesting to see how far the Hymanson
decision will be applied.
END
copyright Roderick Ramage
click below to
return to list of pension law articles
return to list of other law articles