HMRC’s application of rules in pursuing tax charges from pension scheme members that have been affected by pension liberation scams is “inconsistent and quite unfair”, the Work and Pensions Committee (WPC) has heard.

In a session on pension liberation scams, WPC chair, Stephen Timms, asked representatives from Dalriada Trustees and Arc Pensions Law on their opinion on how HMRC approached pursuing tax charges where there has been an unauthorised payment to someone from a pension scheme, and whether the pursuit of these charges was an effective deterrent against tax fraud.

“When members are asked how or why they got involved in a scheme of this type, no member has ever answered ‘to evade or avoid tax’,” responded Dalriada Trustees senior trustee representative, Sean Browes.

“So, fundamentally, members weren’t aware of the potential tax consequences of getting involved in schemes like this.

“A tax system should be fair, and if you look at the outcome in the tax tribunal for Ark [Pension Schemes], which was fundamentally where the tribunal had decided it was the correct application of the law, but in applying the law had accepted there was a number of unfair outcomes. I don’t think that’s right.”

Last year, Dalriada’s appeal against HMRC’s tax treatment of members of the Ark Pension Schemes were unsuccessful in a tax tribunal, resulting in “significant tax consequences for both the members personally and the schemes themselves”, the trustee firm stated at the time.

Timms asked another evidence giver on the panel, Arc Pensions Law partner, Ben Fairhead, whether he had ever seen HMRC exercising discretion in cases such as the Ark Pension Schemes case.

“No, I don’t think so,” said Fairhead. “The way it’s being applied is inconsistent and quite unfair.

“Sean mentioned the Ark schemes that went through a full tax tribunal process. The payments the members received for those schemes were quite transparent, weren’t concealed at all, the members were all under the impression it was done in an above-board way.

“The way that’s being approached doesn’t feel very logical to somebody standing back from it and seeing how the members have been taxed. They haven’t been taxed on the payments they’ve received; they’ve been taxed on a payment they’ve notionally made to somebody else.

“So, you end up with, in itself, what looks like quite an unfair outcome.”

Fairhead added that there was “very little prospect” of HMRC pursuing the tax charges across the board in a consistent way.

“I don’t know what the figures are, but I doubt we are talking enormous sums in the greater scheme of things, bearing in mind there is quite a lot of cost in pursuing it,” he continued.

“And I don’t think there’s any precedent value now, because these types of schemes really shouldn’t be happening anymore.

“So, the fear that they might have had 10 years ago about letting members off the hook and encouraging more schemes like this to be set up, I just don’t think that’s a good argument anymore.”

A HMRC spokesperson commented: “We sympathise with people who may have lost money by entering such arrangements and handle these situations on a case-by-case basis. We recognise that dealing with large tax liabilities can lead to pressure on individuals and we are committed to identifying and supporting anyone who needs extra help.

“We have a legal duty to collect tax whenever it’s due and the tribunal’s judgment on Ark confirmed that scheme members have a tax liability.

“We are committed to working with Dalriada to help members understand the tax implications but our message to anyone who is worried about paying what they owe is: Please contact us as soon as possible to talk about your options.”

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