In Bella Figura Ltd V HMRC [2020] UKUT 120, the Upper Tribunal (UT) found that HMRC were out of time on two of the three discovery assessments and incorrectly issued one relating to a pension unauthorised payment charge.

The UT identified errors of law in an earlier decision of the First Tier Tribunal (FTT) surrounding the carelessness of the taxpayers and the omission of taking into account relevant considerations. As such the UT could either remit the case back to the FTT or re-make the decision.

  • Mr Wrightman, the taxpayer, was both the employer company Bella Figura Limited, and the pension scheme administrator. He had made it clear that one of the reasons for setting up a registered pension fund was the ability to lend money.
  • In November 2010 the Bella Figura pension scheme made a loan of £200,000 to Falkan Ltd, a company connected with the taxpayer.

HMRC took two steps in relation to the loan made from the pension fund.

  • In March 2015 HMRC issued a Discovery Assessment and penalty of 40% under the scheme sanction.
  • HMRC raised further discovery assessments, followed by penalties of 40% and 15% in October 2015. These related to a Pensions Unauthorised Payment Charge and an unauthorised payment surcharge respectively.

The FTT case reviewed the assessments raised:

  • Both taxpayer and HMRC accepted that the loan payment was not authorised as it did not meet the conditions of being an authorised employer loan. As such it would be subject to Income Tax charges.
  • The assessments had been raised outside of the four years and as such HMRC were relying on the taxpayer being careless which extends the period to six years.
  • The burden of proof lay with HMRC to demonstrate that the taxpayer had failed to take reasonable care and caused an insufficiency of tax.
  • Mr Wrightman failed to demonstrate that he acted as a reasonable taxpayer when organising the loan from the pension fund to ensure it met the conditions of being an authorised employer loan.
  • The taxpayer argued that he had not intentionally sought to abuse the pension tax regime and that neither the scheme nor HMRC had suffered any loss as the loan had been fully repaid.

The FTT had found:

  • The discovery assessments raised by HMRC were valued in relation to the unauthorised payment charge and unauthorised payment surcharge.
  • The scheme sanction charge was a valid assessment albeit outside of the discovery assessment regime.

The UT found that the FTT:

  • Should have considered if Mr Wrightman had taken reasonable care surrounding the loan: in the absence of specific advice, had he obtained implicit reassurance that the loan would qualify. 
  • Did not take into account whether the failure to take reasonable care resulted in a loss of tax. Consideration had also not been taken on what the impact would have been had the loan qualified.

The UT remade the FTT's decision so that:

(1) The assessments of the unauthorised payments charge and surcharge are set aside on the basis that they were made out of time.

(2) The scheme sanction charge stands as a valid assessment under Regulation 4 of the Regulations and is not set aside under s268 and s269 of FA 2004.

Useful topical guides and tips

Discovery Assessments
What is a Discovery Assessment? When can HMRC make a Discovery? What are the time limits for Discovery Assessment?

Grounds for appeal: Reasonable excuse (freeview)
What is a 'reasonable excuse' in terms of making an appeal against a tax penalty for late filing, late payment or error?

How to appeal a tax penalty
How to appeal a tax penalty. What are your rights of appeal if HM Revenue & Customs (HMRC) have assessed you for a tax penalty?

Pensions Unauthorised Payments
What is a pensions unauthorised payment? When does a tax charge arise? Who pays the charge?

Pensions: At a glance
Pensions are a 'tax-advantaged' method of saving funds for your retirement. This 'At a glance' guide provides you with the key contribution limits and savings allowances.

External links

Bella Figura Limited v HMRC [2020] UKUT 120 (TC)

Bella Figura Limited v HMRC [2018] TC06614