Hogan Lovells

Key Dates

Judgment given on 13 November 2018. 


Summary

The First-tier Tribunal has allowed an appeal against HMRC's revocation of Mr Hymanson's fixed protection certificate. HMRC had not taken into account the possibility that the contracts under which Mr Hymanson continued to make contributions to his pension arrangements might be void for mistake. This possibility was a very relevant factor and HMRC's failure to take it into account made its decision to revoke the certificate unreasonable.

Facts

Mr Hymanson was sole director of a company that specialised in ceilings. He had four pension arrangements, which included his "main scheme" into which contributions were decided annually on the basis of funds available, plus two pension policies into which modest contributions were made by standing order each month. The main scheme owned the business premises of Mr Hymanson's company, which paid rent to the scheme.

In 2011/12 Mr Hymanson was advised by his actuary to apply for fixed protection, in advance of the reduction in the lifetime allowance from £1.8m to £1.5m on 6 April 2012. Mr Hymanson did not make any further contributions to his main scheme but contributions continued to be paid by standing order to the other two policies.

In February 2015, Mr Hymanson was diagnosed with cancer. Believing he might not have long to live, he started putting his affairs in order. During this process he noticed that payments had continued to the two policies and mentioned this to his actuary, who immediately realised there was an issue with fixed protection.

Following various exchanges of correspondence, HMRC informed Mr Hymanson on 24 August 2016 that it had decided to revoke his certificate of fixed protection (his "paragraph 14 certificate"). A review of the decision by HMRC, following an appeal by Mr Hymanson, concluded that its decision was correct. Mr Hymanson then appealed to the Tribunal.

Issues

There were three issues to be considered in the appeal.

Jurisdiction

Gillett J had concerns that HMRC's power to revoke a paragraph 14 certificate "if HMRC have reason to believe that [particular circumstances, including benefit accrual] has occurred" might seem to be a trivial test, less demanding than the "Wednesbury test" of reasonableness. However, counsel for HMRC confirmed his belief that the Wednesbury test was the appropriate one for judging HMRC's revocation of the paragraph 14 certificate.

Gillett J concluded that the Tribunal's jurisdiction in relation to HMRC's revocation power was merely supervisory. It followed that it could only interfere with HMRC's decision to revoke Mr Hymanson's paragraph 14 certificate if it had not taken into account relevant factors and no irrelevant factors, or had otherwise made a decision which no properly directed officer could reach.

Would the High Court have granted recission?

Mr Hymanson argued that he had made a mistake when paying the additional contributions and that therefore the payments should be set aside and treated as if they had not been made. The Tribunal noted that Mr Hymanson was not mistaken as to the actual transaction (that contributions were paid) but that he was mistaken as to the tax consequences.

The Tribunal considered the Supreme Court's decision in Pitt v Holt, in particular that:

The Tribunal found that Mr Hymanson was genuinely confused as to why his company was permitted to continue to pay rental to the pension scheme but that neither he nor the company should pay further pension contributions. He could not see any difference between the two and rationalised his position by concluding that it was acceptable to continue payments under existing arrangements but that he could not decide to make additional pension contributions.

As to the seriousness of the mistake, Mr Hymanson had made further contributions totalling around £7,000 but had lost tax estimated at £50,000. Even the first pension contribution of £62.50 would be sufficient to cause the tax loss, which was clearly disproportionate. If Mr Hymanson had understood the tax consequences of making additional contributions he would undoubtedly have not done so.

Equitable maxim

HMRC told the Tribunal that if Mr Hymanson obtained an order for rescission from the High Court, HMRC would reissue a paragraph 14 certificate to him.

The Tribunal followed the Upper Tribunal's decision in Lobler v HMRC, in which Proudman J held that the appellant would be entitled to rectification in the High Court and that his tax position should therefore be determined as if rectification had already been granted. Mr Hymanson would be entitled to rescission if he took his case to the High Court and, applying the equitable maxim "that which should be done should be treated as having been done", his tax position should therefore be determined as if that remedy had been granted.

In reaching this decision, the Tribunal noted that the judge in Lobler was at pains to point out that her approach could be applied to any equitable remedy. It also dismissed HMRC's argument that using the equitable maxim in this way would cause very significant administrative difficulties for HMRC, as the Tribunal could not make orders as to ancillary and related matters associated with the rescission of the contributions. At an earlier stage, HMRC had suggested that if Mr Hymanson could prove that he had instructed his bank to cease contributions and it had failed to do so, then HMRC would be prepared to reverse the payments. HMRC had presumably considered at that stage that the practical difficulties would not be insurmountable.

Tribunal's decision

Gillett J allowed Mr Hymanson's appeal and held the following.



Date Accessed: 28/05/2022