HMRC discretion on scam victims’ tax bills not justifiable, says minister

Responding to a letter to the Work and Pensions Committee dated April 21, Glen highlighted the role of HMRC, arguing that it could not use its discretion to waive taxes in pension liberation cases, as the facts of the case demonstrate that the person involved received or expected to receive a payment from the scheme that was not authorised by the laws enacted by parliament. 

The letter was in response to one from Stephen Timms MP, chair of the committee, that was published last month asking if HMRC was monitoring the “quality and consistency” of its service and its treatment of pension scam victims.

Glen began by stating that HMRC “continues to make progress” on a number of areas highlighted by the committee, including improvements to its communications and published guidance, and working with industry to understand some of the recommendations made. 

Many people involved in pension liberation claim publicly that they are victims of pension scams and did not set out to avoid tax

John Glen, HM Treasury

He said it was important to note that HMRC is responsible for administering pensions tax legislation and ensuring that the tax relief provided on contributions to pension savings is used for its intended purpose and not abused.

“This ensures fairness and prevents those who access their savings in a manner other than the way legislation permits from unfairly benefiting,” Glen said.

Timms questions HMRC’s powers

In his letter, Timms asked what powers HMRC has to waive unauthorised payments tax charges, and whether the government would step in with further legislation if HMRC claims it is unable to stop pursuing the tax penalties of victims of pension liberation fraud.

He cited the Work and Pensions Committee’s report into scams published in March 2021 and recognised that pension freedoms had put savers at a greater risk of being scammed.

Under current rules, pension holders are liable to be taxed if they, or anyone connected to them, access funds from their pension before their normal minimum pension age.

Early pension access as part of pension liberation scams represent the most common form of unauthorised payment, according to the committee’s report. 

These scams involve a fraudster making false promises to encourage someone to access their pension before the age of 55, usually leaving the victim with a substantial tax bill.

However, Glen explained in his response that HMRC has “a duty to collect tax”, and that includes collecting tax charges from people who have entered into arrangements where they received, or intended to receive, their pension savings outside of the specific circumstances approved such as through pension liberation schemes.

“The government was clear that HMRC aims to treat all its customers with sympathy and that customers are supported according to their specific circumstances,” he said.

“I am more than happy to provide more information on how HMRC uses its discretion when dealing with those affected by pension scams and pension liberation.”

He said HMRC carefully considers each case to ensure the tax treatment is correct. 

Where, based on the facts in its possession, HMRC seeks to collect tax from pensions savers, it does so as it has determined there is sufficient evidence to show that the individual has received, or expected to receive, an unauthorised payment by entering into a scheme that was designed to circumvent the tax rules.

“Many people involved in pension liberation claim publicly that they are victims of pension scams and did not set out to avoid tax,” Glen wrote.

“However, when checking against HMRC’s records, HMRC will often find differences between what the individuals say publicly and the established facts.”

Commissioners can exercise discretion

Discussing HMRC’s discretion and how it is used, Glen explained that commissioners are sometimes able to exercise discretion when undertaking their duties.

In exceptional cases, this means it may be justifiable for them to refrain from collecting tax that is legally and strictly due under the law. 

Yet this discretion, which is often referred to as “collection and management” discretion, does not allow the commissioners to refrain from collecting tax that is lawfully due simply on the basis that the tax charge could be perceived as being unfair or unpalatable. 

“The scope of the commissioners’ discretionary powers has been the subject of case law decisions over the years,” Glen said.

“This case law has framed the limits of the discretionary powers and set out the kind of exceptional circumstances in which they may be justifiably exercised.

“While HMRC has used its discretion in some pension scam cases, based on a considered assessment of all the facts in its possession, there is no justifiable basis for doing so in these pension liberation cases as the facts of the case demonstrate that the person involved received or expected to receive a payment from the scheme which was not authorised by the laws enacted by parliament.”

He continued: “If anyone considers that HMRC has applied the incorrect interpretation of legislation or arrived at an incorrect result following an assessment of the facts available, they can challenge HMRC, either through requesting a reconsideration or through the tax tribunals.”

Glen added that HMRC maintains the view that pension liberation schemes, such as the Ark schemes, were set up with the aim of circumventing the tax charges on unauthorised payments from a registered pension scheme to members. 

“The government does not consider it would be appropriate to change legislation on the collection of any tax charges arising from these schemes, as to do so would be unfair on people who have left their savings in a pension scheme or accessed their pensions only in accordance with the tax rules,” he said.

This article originally appeared on FTAdviser.com