When the sweeping changes of A-day saw the introduction of the lifetime allowance back in 2006 we had two main forms of protecting pension benefits.
Primary protection gave an enhancement factor for those already over the lifetime allowance, and enhanced protection was available to protect all funds whatever the level, but with the proviso that no further contributions were made nor benefits accrued on or after 6 April 2006.
The closing date for both these forms of protection was 5 April 2009 – but regulations set out circumstances when late notifications could be accepted. The individual requires a reasonable excuse for not giving the notification by the closing date, and has to complete the notification without unreasonable delay once the reasonable excuse has ceased. If HM Revenue & Customs (HMRC) refuses to consider the late application an appeal process through the tax tribunals is available.
This appeal process has been tested in a number of cases – Twaite v HMRC, Tipping v HMRC and Jackson v HMRC.
In the Twaite case, it was agreed that there was a reasonable excuse for late notification (largely relating to Mr Twaite’s state of health). However there was unreasonable delay after the need for protection was identified before the application was made – 11 months in total – so the appeal was dismissed.
In both the Tipping and Jackson cases the appeals were successful. Ultimately the success of these cases boiled down to the fact that both the excuse for not applying by the deadline, and the delay once the excuse had ceased, were found to be the fault of the advisers involved, on whom the client had reasonably relied.
Back to the courtroom
Fast-forward to 2020 and we now have a case where a late application for fixed protection (the original 2012 version) has been through the first-tier tribunal – Harrison v HMRC.
There are some similarities between this case and the successful appeals of both Tipping and Jackson; in all cases the advisers involved were found to be at fault. In the Harrison case the client was mistakenly informed that enhanced protection was held, so it was not considered appropriate to apply for fixed protection. Sometime later, and after the 5 April 2012 deadline had passed, it became apparent this was not the case and a late application for fixed protection was made.
The problem was that the regulations for applications for fixed protection (and individual protection) are missing any references to late application. While the 2006 regulations clearly set out the basis on which late applications for enhanced or primary protection may be accepted, the 2011 regulations governing the later protections are silent on the matter.
This means the basis for HMRC accepting late applications for one of the original protections are clear – if in HMRC’s view you meet the two tests then your application will be accepted. If HMRC refuse the application the tribunal can review it – and what they are reviewing here is whether both the excuse and any subsequent delay in applying were reasonable.
In contrast in the Harrison case HMRC focused on the lack of equivalent specific regulations in relation to fixed protection. In their original decision they stated:
“The lack of such provision reflects Parliament’s intention to limit the circumstances in which HMRC may accept a late application for Fixed Protection, and I have decided that it would be contrary to that intention were I to exercise discretion to allow your late notification.”
Upon request the case was reviewed a number of times by HMRC and, with no change in decision, it was eventually taken to appeal. The right to do this is confirmed in the 2011 regulations which state that where notified the tribunal must determine whether HMRC was entitled to take the view that the notice did not satisfy the requirements (set out in regulation 4, SI2011/1752). Effectively the tribunal is determining whether HMRC acted reasonably in concluding that the requirements hadn’t been met.
The key requirement in regulation 4 in this case is that the notice “must” be received by HMRC on or before 5 April 2012.
Interestingly the tribunal considered the use of “must” and concluded that it should not be construed as “must only” – which may lead you to think there could be circumstances where a late application could be acceptable. However, in discussions the tribunal accepted that it would be difficult to envisage the circumstances which would lead them to think it would be unreasonable for HMRC to consider that the conditions had not been met if the notice was not received by the deadline.
Ultimately the tribunal agreed that HMRC is entitled to take the view that the notice for protection did not meet the regulations, so did not act unreasonably. This was without considering the wider circumstances that lead to the late application, which were not contested.
Given HMRC’s decision and the tribunal’s comments it is difficult to see other late applications being accepted – which puts fixed protection late applications on a very different footing to those of enhanced protection.
Lisa Webster is senior technical consultant at AJ Bell