Clark v HM Revenue and Customs

For the purposes of Part 4 of the Finance Act 2004, payment is construed according to the practical and business reality of the transaction. A transfer may therefore be an unauthorised member payment even where defective trusts mean that only legal title passed and the money remained subject to a resulting trust. The decisive question is whether the transaction was intended to remove money from the pension scheme and place it at the member’s free disposal. An equitable obligation to restore the money does not prevent a payment. A discovery assessment is confined by the assessing officer’s subjective discovery, but its scope is read in context. It may cover an unauthorised payment arising from a composite series of connected transactions.

Mr Clark transferred approximately £2.115 million from a self-invested personal pension to the Laversham Marketing Limited Pension Scheme. The trusts of that scheme were later found void for uncertainty, so the beneficial interest remained subject to a resulting trust. The money was subsequently used in transactions intended to place it under Mr Clark’s control.

HMRC issued a discovery assessment under section 29 of the Taxes Management Act 1970, initially relying on a later payment from the pension scheme to its employer. The First-tier Tribunal held that the original transfer was a payment under section 160(2) of the Finance Act 2004 and that the assessment covered it: [2016] UKFTT 0630 (TC); [2017] UKFTT 0392 (TC). The Upper Tribunal dismissed Mr Clark’s appeal: [2018] UKUT 0397 (TCC). The issues were whether the original transfer was a payment and whether it fell within the discovery assessment.

Appeal dismissed. Henderson LJ gave the leading judgment. Nicola Davies LJ and Bean LJ agreed.

1. The transfer from the Suffolk Life SIPP was a payment within section 160(2) of the Finance Act 2004. The word payment is an ordinary word with a flexible meaning. It must be construed in the practical and business context of the statutory scheme. The money left the transferor scheme, legal title passed, and the composite arrangements placed the money at Mr Clark’s disposal. The fact that the recipient scheme’s trusts were void, so that the money was held on a resulting trust, did not alter that conclusion.
2. The charge on unauthorised payments is not dependent on a breach of scheme rules or trust. Construing payment as excluding transfers which retained a beneficial obligation to restore the property would deprive the tax charge of effect in cases where it was most needed. Hillsdown Holdings PLC v Inland Revenue Commissioners was distinguished because it concerned authorised employer payments and a different statutory context. The reasoning of the Court of Appeal in Venables v Hornby was preferred and applied: [2002] EWCA Civ 1277.
3. The scope of a discovery assessment is defined by the assessing officer’s subjective discovery, although the assessment must be read in context. Applying the principles stated in Fidex Limited v Revenue and Customs Commissioners: [2016] EWCA Civ 385, the notice and accompanying letter showed that HMRC was investigating a connected series of transfers and an unauthorised member payment in the 2009/10 tax year. The assessment therefore encompassed the original transfer as well as the later payment.
4. The court left open whether different considerations might arise where an unauthorised payment was made inadvertently or carelessly and promptly and effectively restored before assessment.

1. Court of Appeal (Civil Division): The appeal was dismissed: [2020] EWCA Civ 204.
2. Upper Tribunal, Tax and Chancery Chamber: The appeal from the First-tier Tribunal was dismissed on both issues: [2018] UKUT 0397 (TCC).
3. First-tier Tribunal: The original transfer was held to be a payment under the Finance Act 2004, and the discovery assessment was upheld: [2016] UKFTT 0630 (TC); [2017] UKFTT 0392 (TC).