Payments made under a mistake could be treated as rescinded

23rd Aug 2019
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Contributions to pension schemes made under a mistake as to the tax consequences could be rescinded, and an appeal against the revocation of a fixed protection certificate for lifetime allowance purposes by HM Revenue and Customs (HMRC) was allowed. 
The appellant was advised by an actuary to apply for fixed protection for pension saving lifetime allowance purposes (under FA 2011, Sch 18, para 14). A certificate of fixed protection was subsequently obtained in January 2012.  
The appellant did not understand that his standing orders for contributions to two personal pension schemes had to stop as a condition of fixed protection. Consequently, he did not take any steps to notify the bank to stop making the standing orders, which therefore continued after April 2012 (i.e. until April 2015). 
The appellant’s actuary wrote to HMRC explaining the situation, and requested agreement for the contributions paid in error to be refunded. However, HMRC decided to revoke the certificate of fixed protection previously issued (under the Registered Pension Schemes (Lifetime Allowance Transitional Protection) Regulations 2011 (‘Transitional Regulations’), reg 11). The appellant appealed. 
The First-tier Tribunal (FTT) considered that there were essentially three elements to the appeal: (1) Was the tribunal’s jurisdiction merely supervisory or a full appellate jurisdiction? (2) Would the appellant be granted the remedy of rescission of the payments made after April 2012 if he took his case to the High Court? (3) If the tribunal found that the appellant would be able to obtain an order for rescission of the additional payments, should the tribunal apply the equitable maxim to treat ‘that which ought to have been done as having been done’ and proceed on the basis that the additional payments should be ignored for the purposes of FA 2011, Sch 18 para 14? 
On element (1) above, the FTT concluded that its jurisdiction as regards regulation 11 of the Transitional Regulations was merely supervisory.  
With regard to element (2), the FTT stated that it was clear from Pitt v Holt [2013] UKSC 26 that a voluntary disposition (such as the additional contributions to the pension schemes) may be set aside on the grounds of mistake. However, it was necessary to examine the nature and seriousness of the mistake in order to establish if it was appropriate to do so. The FTT considered that the appellant’s mistake was a genuine conscious belief that it would be acceptable to continue making the standing order payments to the pension schemes. As to whether the consequences of the mistake were sufficiently serious to merit the remedy of rescission, the FTT concluded that there would be a totally disproportionate loss of tax benefit; had the appellant understood the tax consequences of making the additional contributions, he would not have done so.  
The FTT therefore found that if the appellant took his case to the High Court, it would issue an order for rescission of the additional contributions because of his mistaken belief as to the tax consequences of the payments. 
On element (3) (the ‘equitable maxim’), the FTT concluded that the appellant would be entitled to rescission if he were to take his case to the High Court and that his tax position should therefore be determined as if that remedy had been granted. 
However, the FTT had already decided that its jurisdiction, in this case, was purely supervisory. The FTT could only interfere with HMRC’s decision to revoke the fixed protection certificate if it could find that their decision did not take into account relevant factors, or did take into account irrelevant factors, or was otherwise such that no properly directed officer could come to that conclusion. The FTT noted that HMRC had not taken into account the possibility that the payments could be rescinded because of the appellant’s mistake; this was a very relevant factor.  
The FTT therefore found that HMRC’s decision was unreasonable. The appellant’s appeal was allowed. HMRC was directed to issue a new fixed protection certificate to the appellant. 
The doctrine of mistake may be a remedy in other circumstances involving mistakes affecting the tax consequences of transactions. However, an application to the High Court is generally an expensive process. 

Hymanson v Revenue and Customs [2018] UKFTT 667 (TC)

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