What happens if you make a mistake which results in you facing unexpected, and perhaps unfair, tax consequences? Readers may remember the saga of the Lobler case which we covered in previous briefs. The taxpayer ticked the wrong box on a form which led him to face a tax charge of £350,000 even though he made only a tiny investment profit. That case was eventually resolved satisfactorily but did show up that the law doesn’t really have proper mechanisms to deal with these sorts of issues. Another case has been reported recently which has shown the courts again grappling with the problem.
Mr Hymanson, the taxpayer involved, had a large pension pot and would have exceeded the pensions cap introduced in 2012. Taxpayers in his position were able to make an election for Fixed Protection, which allowed them to retain the full benefit of their accumulated pension pot. One of the conditions of making this election was that the taxpayer was not permitted to make any further pension contributions.
Mr Hymanson made the election and made no further contributions into his main pension but failed to stop a number of standing orders for small payments into other schemes. His adviser had made it clear that all pension contributions had to stop but the taxpayer failed to appreciate that he needed to cancel the standing orders.
The tribunal was sympathetic to Mr Hymanson’s plight, particularly as the additional payments of about £7,000 resulted in him losing at least £50,000 in tax relief. It decided that, had he understood the consequences of continuing to make contributions, he would certainly have cancelled the standing orders. It therefore allowed the taxpayer an 'equitable remedy' by permitting him to treat the additional payments as having never been made. So Mr Hymanson was able to retain his fixed protection.
This was clearly a good outcome for the taxpayer but we confess to being rather surprised that the tribunal felt able to take the approach which it did because it is not obvious that a tribunal has the power to make such a decision. What framework should tribunals use? For example, tribunal judges have almost always refused to give taxpayers permission to make late elections for fixed protection. Are such cases more or less deserving than what happened here? I am strongly in favour of there being a remedy for taxpayers who end up in a manifestly unfair tax position because of oversights or minor errors. But it needs to be properly thought through so that taxpayers know exactly what rights they actually have.