John Mander Pension Trustees Limited v Commissioners for Her Majesty’s Revenue and Customs

Where Revenue approval of a pension scheme is withdrawn retrospectively under section 591B(1) of the Income and Corporation Taxes Act 1988, the tax imposed by section 591C is assessable for the tax year containing the effective date specified in the withdrawal notice. It is not assessable for the year in which the notice was given.

The provisions governing the occasion, computation and timing of the charge must be read together. They treat the scheme administrator as receiving a notional gain immediately before approval ceased to have effect. Retrospective assessment in that earlier period recognises the facts that justified withdrawal and does not permit the Revenue to select the chargeable period by choosing when to issue its notice.

The Revenue approved a small pension scheme whose funds were subsequently transferred and made available for advances prohibited within an approved scheme. On 19 April 2000 it withdrew approval under section 591B(1) of the Income and Corporation Taxes Act 1988, with effect from 5 November 1996. It assessed the scheme administrator under section 591C for 2000–2001.

The First-tier Tribunal dismissed the administrator's appeal. The Upper Tribunal upheld that decision in [2013] UKUT 51 (TCC), and the Court of Appeal dismissed a further appeal in [2013] EWCA Civ 1683.

The issue before the Supreme Court was whether the section 591C charge arose in 1996–1997, when withdrawal took effect, or in 2000–2001, when the notice was given.

1. By a majority of three to two, the appeal was allowed. Lord Sumption, Lord Neuberger and Lord Reed held that the section 591C charge was assessable for 1996–1997, the tax year containing the effective date specified in the withdrawal notice. The Revenue was therefore not entitled to assess the administrator for 2000–2001.

2. Per Lord Sumption, section 591C and the supplementary provisions in section 591D of the Income and Corporation Taxes Act 1988 had to be read as a whole. Although the charge was economically a levy on the fund's capital value, section 591C(2) characterised it as income tax under Case VI of Schedule D. Its effect was to treat the administrator as receiving a notional profit or gain equal to the value of the scheme assets immediately before approval ceased. That gain arose in the year containing the effective date of cessation.

3. In a section 591B(1) case, the cessation date was the date from which the notice withdrew approval, rather than the date on which the notice was issued. That construction followed the ordinary meaning of section 591C, the conditions in section 591C(4)–(6A), and the equation in section 591D(7) between approval being withdrawn, approval ceasing to have effect and cessation of approval. It also placed all three statutory methods of losing approval on a coherent footing.

4. Section 61(3) of the Finance Act 1995 provided additional support. Its transitional terms presupposed that the date when approval ceased to have effect could differ from the date when a withdrawal notice was given.

5. The resulting assessment was retrospective only in the sense that it concerned an earlier chargeable period. Where the notice took effect from the date on which existing facts first ceased to warrant approval, it recognised those facts rather than imposing tax by reference to later criteria. Interest reflected the scheme's intervening enjoyment of tax advantages to which it was not entitled.

6. Possible enforcement difficulties could not justify treating the notice date as fixing the chargeable period. The Revenue possessed information-gathering powers and an extended assessment period in cases of fraud or negligence. Its construction would also leave the choice of tax year within its discretion and could permit assessment without temporal limit.

7. Lord Hodge, with whom Lord Carnwath agreed, dissented. They considered that section 591C(1), reinforced by the presumption against retroactive taxation, imposed the charge when the withdrawal notice was served.

1. United Kingdom Supreme Court: By a three-to-two majority, allowed the appeal and declared that the Revenue was not entitled to assess the administrator under section 591C of the Income and Corporation Taxes Act 1988 for 2000–2001: [2015] UKSC 56.

2. Court of Appeal: Dismissed the trustee's appeal and upheld the assessment for 2000–2001: [2013] EWCA Civ 1683; [2014] 1 WLR 2209.

3. Upper Tribunal (Tax and Chancery Chamber): Vos J upheld the First-tier Tribunal's decision and held the current trustee liable under the assessment: [2013] UKUT 51 (TCC); [2013] STC 1453.

4. First-tier Tribunal (Tax Chamber): Dismissed the appeal against the assessment, holding that the charge arose in the year ending 5 April 2001.