You might be aware of HMRC’s ‘genuine errors’ provision. Effectively, it allows for mistakes to be rectified without unpleasant consequences such as unauthorised payments charges.
HMRC’s guidance has always been very clear that the genuine errors provision only covers very literal administration mistakes; the examples provided on its website includes things such as digits being accidentally transposed when a pension commencement lump sum (PCLS) payment is being processed, and third parties making valuation errors which the provider could not have known about. Another example commonly cited is a bank failing to act upon an instruction to cancel a payment. The underlying principle is that an event is only a genuine error if there was never an intention for that event to take place.
The genuine errors provision is particularly relevant for pension contributions, where an unwanted contribution can have big consequences, but there are normally only very limited circumstances in which a payment can be reversed.
This subject is the focus of a recent court case. Mr Hymanson was advised to apply for fixed protection 2012 and was informed that he would need to stop his pension contributions. Mr Hymanson had two pensions which were receiving regular contributions by standing order, and another to which he made ad-hoc contributions each year. One of the pensions receiving regular contributions by standing order was also receiving rent payments by standing order, as it held Mr Hymanson’s business premises as a commercial property investment.
Mr Hymanson did not understand the difference between his company paying rent payments and the regular contributions, and reasoned that the instruction not to make further contributions must only refer to the ad-hoc payments he made each year. As such, he did not cancel the standing orders and the contributions continued.
When this was discovered in 2015, Mr Hymanson, along with his adviser, appealed to HMRC to agree that the contributions could be refunded and the fixed protection remain intact, as the contributions were made in error. HMRC said that the situation could only be treated as a genuine error if there was evidence that Mr Hymanson’s bank had failed to act on an instruction to stop the payments. As this wasn’t the case, HMRC stated that the payments were not a genuine error and Mr Hymanson had invalidated his fixed protection.
However, the first tier tribunal has now ruled that Mr Hymanson’s situation can be classed as a genuine error.
The ruling made for a reassuring, very human-feeling read. Firstly, it was refreshing to read a discussion of this nature which didn’t centre on assigning blame. Of course, it’s hard to know exactly what went on in the background before this stage, but there didn’t seem to be any attempt to point the finger at Mr Hymanson’s adviser for not making his instructions clear enough or not going far enough to ensure that the instructions were followed. In fact, the tribunal found that the adviser’s letters were ‘admirably clear’. It was simply accepted that despite clear information, it’s still perfectly possible for a misunderstanding to occur.
This same acknowledgement of human nature was also present in the decision itself. The tribunal’s argument was that while Mr Hymanson did intend the payments to continue (in the sense that he didn’t take steps to stop them), he did not intend to do anything to invalidate his fixed protection. He simply did not understand that the former would cause the latter, and that was the genuine error.
So what could this more lenient stance mean for future cases?
My first thought is that it might be too soon to tell. This ruling is from the first tier tribunal, which means the case could potentially be appealed through several more rounds of decisions before a final ruling is made. Even if the ruling isn’t challenged though, I’m not convinced it will open a genuine errors floodgate.
Anecdotally, we find that many enquiries about using the genuine errors provision are based on situations where individuals simply weren’t aware of the rules; for example, where a person was unaware that the annual allowance had dropped. However, this ruling referred to an earlier case in which the judge was clear that ‘mere ignorance’ alone is not enough to constitute a genuine error.
The key point in this case, therefore, is that Mr Hymanson wasn’t simply unaware that contributions would invalidate his protection – he knew about this rule and fully intended to keep to it, but genuinely misunderstood the information he’d received. Mr Hymanson was also able to provide evidence that this was the case. Comparable cases may be few and far between; however, those affected will be reassured that this ruling helps puts the ‘human’ back into ‘human error’.
Jessica List is pension technical manager at Curtis Banks