There are many different payment methods for goods and services. When it comes to individuals making contributions to registered pension schemes, how must payments be made to qualify for tax relief?
Cash or assets?
HM Revenue and Customs (HMRC) considers that ‘paid’ in this context generally means that contributions to the scheme must be of a monetary amount (e.g., cheque, direct debit, bank transfer) (see HMRC’s Pensions Tax Manual at PTM042100).
However, HMRC’s guidance also states: ‘…it is possible for a member to agree to pay a monetary contribution and then to give effect to the cash contribution by way of a transfer of an asset or assets.’ There must be:
- A clear obligation on the member to pay a contribution of a specified monetary sum (e.g., £10,000), to create a recoverable debt obligation.
- A separate agreement between the pension trustees and scheme member to pass an asset to the scheme for consideration.
HMRC’s guidance adds: ‘If the scheme agrees, the cash contribution debt may be paid by offset against the consideration payable for the asset. This is the scheme effectively agreeing to acquire the asset for its market value.’
Do as we say?
The Upper Tribunal’s decision in Revenue and Customs v Sippchoice Ltd  UKUT 149 (TCC) is therefore surprising. In that case, a pension scheme administrator company (S) claimed income tax relief in respect of a contribution by an individual (C) to a self-invested pension plan (SIPP) in March 2016. HMRC refused the claim.
The issue was whether the contributions made by SIPP members (including C) were ‘paid’ for tax relief purposes (within FA 2004, s 188(1)). The First-tier Tribunal held that the words ‘monetary contribution’ was wide enough to encompass a monetary amount later satisfied by a transfer of shares. HMRC appealed.
The Upper Tribunal (UT) concluded that the expression ‘contributions paid’ was restricted in the context of the tax relief provisions to contributions of money. As to whether transfers of non-cash assets made in satisfaction of a pre-existing money debt were ‘contributions paid’ for these purposes, the UT held that if (as it had found) ‘contributions paid’ meant paid in money, it could not encompass settlement by transferring non-monetary assets even if the transfer was made in satisfaction of an earlier obligation to contribute money. HMRC’s appeal was allowed.
Is that fair?
The courts have previously indicated that HMRC guidance can be relied upon (e.g., Aozora GMAC Investment Ltd, R (On the Application Of) v Revenue and Customs  EWHC 2881 (Admin)). Taxpayers who rely on HMRC guidance may potentially have a ‘legitimate expectation’ that can be enforced by the courts.
However, the UT in Sippchoice noted that although PTM042100 (see above) contained passages supporting S’s case, S had not argued that it relied on the passages or had a legitimate expectation that HMRC would not resile from them.
Be careful if seeking to rely on HMRC’s manuals. Even though C’s actions in Sippchoice accorded with the guidance at PTM042100, HMRC still contested the appeal on the basis that C’s pension contribution had not been ‘paid’. Of course, HMRC’s manuals are merely its interpretation of the law, and are not legally binding.
The above article was first published in Business Tax Insider (November 2020) (www.taxinsider.co.uk).