Member Since: 30th Jun 2017
20th Nov 2021
Sorry for the delay, I've been AFK for a few weeks. The reason I used those words is because the situation is somewhat more complex.
There are two very different types of pension, both of which have been shoehorned into the same set of legislation:
1. Defined contribution (aka money purchase), where contributions are made (whether by the member or the employer) into a member's individual pension pot;
2. Defined benefit (aka final salary), where there usually are no actual contributions into the member's pension pot - and indeed no actual individual pension pot!
For the latter type of pension, an employer, via the pension scheme's actuary, accounts each year for changes in the anticipated overall level of pension (based upon each individual member's salary and the number of qualifying years of service). For example, someone's pension entitlement might accrue at a rate of 1/40 of salary every year: if his salary in year 1 was £100k, that would mean a pension of £2500 (1/40 x 100k). If his salary rises to £102k in year 2, his new pension entitlement is £5100 (2/40 x 102k). That means that over the course of the year, the pension to which he will be entitled has risen by £2600. Because the legislation imposes a 16x multiple (FA2004 s234) for the purposes of the Annual Allowance calculation, the member's pension rights (essentially a notional pension pot) has risen by £41,600.
For a final salary pension, the only possible definition for triggering an AA charge is this "increase in the value of the pension rights".
In a money purchase scheme, the corresponding increase in value of the member's rights is directly measured by the making of contributions. The value of your pension pot has directly and unambiguously increased by the amount of cash you have added.
In both cases, the term of art is "pension input", but that would make no sense to the average reader, so when writing about pensions I use a phrase which covers both scenarios.
Most people only think about money purchase arrangements (where planning is straightforward - simply pay a lower contribution), but the devil in this particular legislation is mainly being found in final salary schemes (especially the NHS Scheme, which I've covered in earlier articles).
High earners can find themselves liable to a tax charge for having exceeded the AA simply by virtue of a pay rise, or even by merely having accrued a further 1/40 of an unchanged final salary! If your personal AA is only £4000, your salary is going to be well north of £200k, so an extra 1/40 accrual is going to take you over the Allowance without so much as lifting a finger.
This is getting long. Hope it makes some sense.
2nd Sep 2021
Sorry, only just seen your comment.
jeremybarker has kindly linked you to the legislation which, as you say, is quite a big chunk. It's also written in oldspeak, so takes a fair bit of untangling.
For those who like more user-friendly guides, this link
is as user-friendly as it gets (it's a HoC briefing designed to enable MPs to understand this problem if it gets brought to them by constituents). Hope this helps - it contains footnotes linking through to the more detailed legislation.
13th Aug 2021
You appear to have ignored the word "entirely" in the subhead. Indeed, you then go on to criticise a misquotation which deliberately omits that word. Straw man, much?
The concept of entirety was the key issue in the case - HMRC treated the payment as monolithic, and the Tribunal rightly found that there were elements which had a different character than that of employment income and should therefore not be taxed as such.
24th May 2021
Actually, they spelled out their reasoning on the "collective knowledge" aspect in far more nuanced detail than space permitted me to describe in the article. The issue is that HMRC carries out its functions using individual Officers, and questions (such as in s29) of "knowledge" can only be viewed through the lens of the knowledge available to, and the state of mind of, the particular Officer at the particular time.
At  the Court set out the legislative history which shows that "whether there was a discovery by an inspector depended on the particular inspector’s state of mind, not on what knowledge might be located elsewhere in the Revenue organisation". This is reinforced by "the way in which the Revenue works in practice, as illustrated by the evidence in this case, where a taxpayer’s file is allocated to a particular officer to review and take relevant decisions and actions, drawing as necessary on advice or submissions presented to the officer by others".
At  they drew the same conclusion from situations where an individual Officer is exercising the delegated authority of the Board: "As the delegate of the Board, the officer stood in their place. The officer would act on their behalf on the basis of the officer’s own state of mind and knowledge, not by reference to the state of mind or knowledge of anyone else in the organisation".
They went on to consider parallels within other Departments, citing:
* R (National Association of Health Stores) v Department of Health  EWCA Civ 154
* Carltona Ltd v Comrs of Works  2 All ER 560
* R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (No 3)  UKSC 3;  1 WLR 973
From these they concluded "There is no principle of collective knowledge within a department. If a civil servant acts on behalf of a Minister, it is the civil servant’s knowledge and state of mind which are relevant".
At  they examined a number of scenarios where the idea that "records are king" might fall down in practice: "A first officer who is allocated a self-assessment return to review
* puts it in a drawer unread and so does not see that it contains an under-assessment of tax
* or fails to read it carefully and so does not spot that it contains an under-assessment of tax
* or reads it carefully but makes an error of appreciation of the facts or the law and so again does not realise it contains an under-assessment of tax
* or reads it carefully and finds the error but then goes on holiday, moves job or retires without issuing an assessment".
Developed further in :
"The first officer might leave a note on the file to say that he or she has made a discovery of an insufficiency of assessment to tax but the note might be difficult to interpret, so the second officer has to repeat the exercise of examining the assessment to form his or her own view. Or the first officer’s note might be thorough and clear, but the second officer may not have confidence in what the first has done and so may wish to make his or her own evaluation".
The records arguably should (as you say) ensure that knowledge is permeated through the organisation, but this is the real world. A record is only as good as the person making it, and its impact on others is only as good as the person reading it. It is unrealistic and unreasonable to deem some sort of hive mind to exist, even among the drones and workers of the Civil Service!
23rd Jun 2020
I would say that such a scenario would be an ideal opportunity to suspend penalties. Bravo to HMRC for doing so.
Out of interest, what conditions did HMRC impose on the suspension?
6th Dec 2018
It may be bizarre, but nowhere near as bizarre as you seem to think.
As long as we are within para 17: if just £1 of tax was due, the FTT's reading of the law would mean a penalty of £1; if tax of £299 was due, the penalty would be £299.
Where it gets bizarre is that parliament has in plain words stated that a single penalty (i.e. six months delay) has to be £300 or more but a set of two penalties (i.e. six months and 12 months) can be less.
Why on earth would they enact a paragraph which limits multiple penalties if they didn't mean for there to be an actual restriction? My view remains that it was a defect in the legislation. One role of FTT and the superior courts is to find these and highlight them, so that parliament can get its act together and write legislation that actually makes sense.
23rd Oct 2018
In fact the judge mentioned this very point in his judgment.
It is yet another instance where HMRC has set itself the standard of issuing s8 notices to a class of people regardless of whether they are needed, and where HMRC officers appear to believe there is a s7 obligation even though there isn't.
As he points out, if you have an income of £5million all covered by PAYE, you don't have the remotest duty to notify HMRC of the fact - but they will still insist on sending you a tax return to fill in.
One of the problems with being an executive body is the tendency to confuse mere departmental policy with the law of the land. HMRC Policy can impose an obligation on HMRC staff, but it can't impose one on the taxpayer.
As has been pointed out, most HMRC staff never get to see the raw legislation. Even in my IR days (way back before SA), I was regarded as an anomaly, being a TO(HG) who actually read the TMA...
24th Sep 2018
I seem to recall, eons ago in the pre-SA days, a case where an Inspector decided to assess a woman on her earnings from prostitution but, being a bit prim and mealy-mouthed, he used the (then current) euphemism "French lessons" as the source of income.
At the Commissioners, he was asked whether he had any evidence that the lady actually taught French; on replying no, he was told that the assessment would be dismissed as it assessed a non-existent source....
Distant memory only, and might be purely apocryphal, but we can dream.
28th Feb 2018
Actually, since the claim related to the carry-back of loss relief from one year to the preceding year, it falls within TMA 1970 Schedule 1B. As a result, although it is calculated by reference to the earlier year's income and gains, it is executed as a claim of the later year. Which would enable carelessness to be used to extend the assessment window to April 2015.
That very thing (ie Tooth amending his 07/08 return for a later year loss when there was no statutory authority to do so) should have triggered an immediate enquiry, even without the fact that Tooth actually told them to raise one!