The Implications of the Gordon Tribunal

Tom O’Reilly outlines the implications of the Gordon, Connel, Martino, & Hills v HMRC decision

IT IS SHAPING UP to be a busy year for s29 Taxes Management Act 1970 and discovery assessments. The First-tier Tribunal’s decision in Gerrard Gordon; Gary Connell; Nicola Martino; Ian Hills v The Commissioners for Her Majesty’s Revenue & Customs [2018] UKFTT 307 (TC) has given taxpayers and HMRC more guidance on whether a discovery has become ‘stale’, following the Upper Tribunal decision in Revenue and Customs Commissioners v Tooth [2018] UKUT 38 (TCC) covered in the last edition of this magazine.

The underlying tax dispute in Gordon surrounded whether unauthorised payments had been made by the appellants from their pension schemes, and therefore whether they were liable to unauthorised payment charges and surcharges under s208 and s209 Finance Act 2004 (“FA2004”).

The facts

All four appellants had left the UK. They all transferred their registered UK pensions to an overseas scheme in Latvia in the tax year 2009/10 and received the value of their pension scheme into their bank accounts less fees shortly afterwards. The scheme was excluded from the list of pension schemes published by HMRC on 24 August 2010, after the appellants had transferred their pensions.

No unauthorised payment charges or surcharges were declared by the appellants on their tax returns for 2009/10. HMRC had corresponded with one taxpayer following receipt of the returns; the FTT found there had been a clear conclusion that he was liable to the charges by January 2012. The other taxpayers were not contacted by HMRC until 2013 and discovery assessments were issued towards the end of the 2014 tax year for all the taxpayers.

The decision

The FTT held that a transfer from one pension scheme to another, which was held out to be a Qualified Recognised Overseas Pension Scheme (“QROPS”) to the taxpayers by the scheme and listed on a QROPS list by HMRC on its website, could give rise to unauthorised payment charges and surcharges where it was found after later investigation by HMRC that the scheme did not meet the qualifying conditions. The taxpayers had not proved that the scheme was a QROPS; the pension transfers were unauthorised transfers and the taxpayers were liable to charges under FA2004.

The Tribunal dismissed arguments that the regime breached the fundamental freedoms of the TFEU because overseas and UK pension schemes were treated in the same manner. The Tribunal also dismissed the proposition that the law breached Article 1 Protocol 1 of the Human Rights Act.

Interestingly, the Tribunal also declined to follow the FTT decision of Monaghan v HMRC [2018] UKFTT 156 (TC) in holding that an assessment could not be raised for an unauthorised payment from a pension scheme. Unlike the situation in Monaghan the taxpayers in Gordon had filed a tax return. The Tribunal concluded they were therefore not required to decide whether the decision in Monaghan was correct; the FTT noted that HMRC have appealed Monaghan to the Upper Tribunal on this point and this may have had an influence on their decision.

HMRC can consider themselves successful on the substantive tax issue, but this was ultimately a moot point. As often happens the appeal was won on a procedural issue. The Tribunal decided that on the balance of probabilities a discovery had been made by an officer of HMRC by mid-2011 following the provision of information by the transferring pension schemes in January 2011. The Tribunal held that three years, or two if necessary in the case of one of the taxpayers, was too long for a discovery to retain its “essential newness”. The burden of proof is on HMRC to prove a discovery assessment is valid and HMRC failed to persuade the tribunal that a discovery was not made until later in 2012 or 2013. The assessments raised in 2014 were invalid as the discoveries had become “stale” and the taxpayers’ appeals were allowed.

Practical implications

The decision follows and emphasises earlier decisions in holding that a discovery does not need to be a new piece of information. As summarised by the Upper Tribunal in Tooth it is sufficient that it newly appears to an HMRC officer that there has been an under-assessment to tax; new information, a change of view, a change of opinion, or even a correct of an oversight all count (and this author is sure that HMRC would not regard this list as exhaustive).

However, Gordon makes it clear how quickly HMRC have to raise an assessment once a discovery is made; they must act at least within two years. The first step for taxpayers and their advisors facing assessments therefore should be to determine whether a discovery has been made at all. If one has, then the canny taxpayer and their advisors should consider whether a discovery has become stale. A review of what has been provided to HMRC and when, from both the taxpayer and third parties if possible, will allow for consideration of when a HMRC inspector can be expected to have made a discovery. In the world of tax investigations two years is not a long time at all.

Tom O’Reilly is a Tax Paralegal at Joseph Hage Aaronson LLP and a former HMRC Tax Inspector. He is currently undertaking the ATT/CTA joint pathway and his legal training. He can be contacted at TOReilly@jha.com