Pension scheme administrators beware!
Posted: 20th June 2013
In a warning shot to administrators of registered pension schemes, a chartered accountant who was caught unawares when a £100,000 unauthorised payment was made from a scheme for which he was responsible has been hit with a £15,000 sanction under section 255 of the Finance Act 2004.
The accountant administered a pension scheme established for the benefit of the three directors of a highly successful company. He was not notified when the payment was made from the scheme by way of a loan to the company which in turn paid it to another company owned by one of the directors.
There was no dispute that the payment was unauthorised within the meaning of the Act. The accountant – who was responsible for administering about 100 pension schemes – took steps to remedy the position on discovering it and all the money had subsequently been repaid into the scheme, with interest.
Her Majesty’s Revenue and Customs (HMRC) nevertheless imposed sanction charges of £40,000 and £15,000 on the company and the accountant respectively. In challenging his personal bill before the First-Tier Tribunal, the accountant attacked the charge as wholly unjust and unreasonable.
He submitted that, given the financial strength of the company, there was never any appreciable risk that the money would be lost or not repaid. He also pointed out that he was not a trustee of the scheme, that its bank account was operated without reference to him and that there had been no actual loss incurred.
Dismissing his appeal, the Tribunal noted that the accountant had not been fully aware of the reporting requirements imposed upon him by the Act or the extent of his potential liability as a scheme administrator. The unauthorised payment had been made without a written loan agreement and without security.
The Tribunal acknowledged that there had been little risk of the company defaulting on the loan but noted that the definition of unauthorised payment under the Act pays no regard to the financial position of the employer. The fact that the money had been repaid into the scheme was also irrelevant.
Observing that the purpose of the Act was to guard against unauthorised dispersal of pension funds and to protect employees’ interests, the Tribunal noted that the accountant had had no system in place to identify whether unauthorised payments were being made from the scheme. In the circumstances, the £15,000 charge was just and reasonable.
The Tribunal dismissed the accountant’s plea that the combined charges levied on him and the company – which were equivalent to a 55% rate of tax – were excessive. Arguments that the £15,000 personal charge violated the accountant’s human rights to a fair hearing and to peaceful enjoyment of his personal possessions were also rejected.