Teal blue graphic

SIPP operator discharged from tax liability

Sippchoice Limited v Commissioners for HM Revenue & Customs [2016], heard by the First-tier Tribunal of the Tax Chamber

A SIPP operator, Sippchoice Limited, has appealed successfully against HMRC's refusal of its application to be discharged from liability to pay scheme sanction charges totalling approximately £374,000.

Key messages

  • The case provides some practical insight into points that would be considered as part of an application for discharge from a scheme sanction charge
  • It is important for scheme administrators to undertake due diligence on SIPP investments, particularly where (as in this case) the underlying investment is not clear
  • SIPP providers should be alert to sophisticated schemes whereby an apparently innocent investment may, in fact, be a mask for an investment in another company that is a vehicle for lending funds to a member
  • If a SIPP provider has suspicions that a particular SIPP investment may be a pension liberation scheme, it should make proportionate due diligence enquiries
  • Due diligence enquiries that are made and the responses received should be recorded on file; this would be considered as evidence if an application is made for a discharge
  • If HMRC refuses an application for discharge from a scheme sanction charge, the decision can be appealed

Scheme sanction charge: a refresher

A tax charge known as a "scheme sanction charge" may be imposed by HMRC on a scheme administrator where, broadly, an unauthorised payment is made from a registered pension scheme. An unauthorised payment is a payment that is not authorised under the Finance Act 2004 (Act).

The scheme sanction charge is 40% of the unauthorised payment, however this may be reduced to 15% if the member has paid an unauthorised payments charge in relation to the same unauthorised payment. 

Application for discharge from scheme sanction charge

The scheme administrator can apply to HMRC, under section 268 of the Act, to be discharged from liability to a scheme sanction charge. The relevant grounds on which the scheme administrator may apply to be discharged are that: 

a) the scheme administrator reasonably believed that the unauthorised payment was not a scheme chargeable payment giving rise to a scheme sanction charge; and

b) in all the circumstances of the case, it would not be just and reasonable for the scheme administrator to be liable to the scheme sanction charge in respect of the unauthorised payment.

Where an application for discharge is refused by HMRC, the scheme administrator can appeal under section 269 of the Act to the First-tier Tribunal of the Tax Chamber. This case was such an appeal.

Facts of the case

The scheme administrator, Sippchoice Limited, applied to HMRC to be discharged from the scheme sanction charge on the above grounds under section 268 of the Act. 

In HMRC's view, the SIPP held investments that were used for pension liberation because they allowed a member to access their pension funds before they reached age 55.

The pension liberation involved the member's SIPP investing in shares in an unquoted company known as Imperium Enterprises Limited (Imperium). Imperium lent the invested funds to BOH Investments Limited. BOH funded a subsidiary, SKW Investments Limited, by using the cash to buy shares in that company.  SKW then made a loan to the member. 

In broad terms, in return for the member's investment in Imperium, the member received a loan from another, separate company. The loan was, in HMRC's view, an unauthorised member payment for the purposes of the Act since it was, effectively, an indirect loan from the member's pension fund.

HMRC's previous decision 

HMRC's position, in summary, was that Sippchoice did not reasonably believe that the payments in question were not unauthorised payments because it had received a clear indication that a scheme member was waiting to receive an unauthorised payment. Sippchoice failed to take adequate action to ensure that the SIPP was not being used for pension liberation. HMRC rejected Sippchoice's application for discharge.

The Tribunal's decision

The Tribunal had to decide whether, on the evidence before it, Sippchoice's grounds for the application to HMRC were made out. The key issue was whether Sippchoice's belief that no unauthorised payments were being made was "reasonable". 

The Tribunal decided, on the evidence, that Sippchoice's belief that no unauthorised payments were being made was reasonable. It held that Sippchoice made suitable enquiries of Imperium and was deliberately misinformed by Imperium as to the investments that the company was making. The Tribunal noted that Sippchoice was clear in raising its concerns with Imperium that the investment may be part of a pensions liberation scheme and that false assurances had been given deliberately by Imperium. 

The Tribunal referred to the Court of Appeal decision in Mobilx Ltd (in administration) and others v HMRC [2010] and considered whether Sippchoice realistically had the means at its disposal to learn of the connection between the investments in Imperium and the unauthorised payments. The Tribunal concluded that it did not. Sippchoice had recognised the possibility of pension liberation and had made proportionate enquiries. On that basis, it was reasonable for Sippchoice to be satisfied with the responses received from Imperium, which reasonably appeared to it to be genuine and reassuring.

The Tribunal held also that there was nothing exceptional in the circumstances of the case that would make it just and reasonable for HMRC to impose the scheme sanction charges. On that basis, in the Tribunal's view, the grounds for the application were valid.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Insights & events View all