Judgment summary
This case concerns an appeal by Mr Peter Reed against a discovery assessment issued by HMRC on 20 March 2019, later varied, charging an unauthorised payments charge of £23,712 and an unauthorised payments surcharge of £8,892 (1).
The assessment arose from Mr Reed's participation in a marketed pension liberation scheme, as a result of which he received a payment of £59,280 on 20 November 2014 (2).
The Tribunal found the discovery assessment was validly issued under section 29 TMA 1970 and within the statutory time limit (48, 51). It found the £59,280 payment constituted an unauthorised payment under Part 4 FA 2004, making Mr Reed liable to the unauthorised payments charge under section 208 FA 2004 at 40%, correctly quantified at £23,712 (81).
However, the Tribunal held that the original assessment of 20 March 2019 did not, objectively construed, include an assessment to the unauthorised payments surcharge under section 209 FA 2004, and that this liability could not be introduced later through the statutory review process (70, 71, 72). The appeal was therefore allowed in part (88).
Background
Prior to 2014, Mr Reed held pension benefits in a UK registered pension scheme. In or around June 2014, he transferred his pension fund, valued at £237,025.20, to the Castle Trust Metro Pension Scheme, a QROPS (17, 18).
On 13 November 2014, Castle Trust transferred £565,000 to Digital Media Services Ltd (DMSL), described as investment in Snowdrop Research Ltd, of which £78,000 was attributable to Mr Reed's fund (19, 20). Seven days later, on 20 November 2014, Mr Reed received £59,280 from DMSL (21).
Mr Reed's self-assessment return for 2014-15, filed on 17 September 2015, made no reference to the DMSL payment, the Snowdrop shareholding, or the Castle Trust connection (22).
During 2018, HMRC's enquiries into pension schemes connected with Aspiro Research and Development LLP led to correspondence with Castle Trust, culminating in a spreadsheet received on 4 February 2019 recording Mr Reed's £78,000 investment in Snowdrop (23-27).
On 20 March 2019, HMRC issued a discovery assessment charging additional tax of £12,433.30, later explained by HMRC as resulting from a computational error in intended calculations (29, 30). Mr Reed appealed by email on 27 March 2019 (32).
Following a lengthy procedural history involving an offer of review under section 49C TMA 1970 on 25 March 2021, disputed acceptance timing, and eventual acceptance of a late review on 21 March 2025, HMRC issued review conclusions on 2 May 2025 upholding an increased s.208 charge and a s.209 surcharge (33-40). Mr Reed appealed to the Tribunal on 8 May 2025 (41).
Core dispute
Two procedural issues arose: whether the discovery assessment issued on 20 March 2019 was validly issued, and whether that assessment included, or could be treated through the review process as including, liability to the unauthorised payments surcharge under section 209 FA 2004 (43, 44).
The substantive issues were whether the £59,280 payment received by Mr Reed was properly to be treated as a payment from his QROPS for the purposes of Part 4 FA 2004, whether it was an unauthorised payment, and whether it exceeded the statutory threshold triggering the surcharge (45).
Court findings
The Tribunal found that the discovery assessment of 20 March 2019 was validly issued, as HMRC made a discovery and the condition in section 29(5) TMA 1970 was satisfied, meaning it was unnecessary to determine whether section 29(4) was also met (48-53).
The purported amended assessment of 16 August 2021 could not stand, and the appeal proceeded by reference to the original assessment of 20 March 2019 and the review conclusions of 2 May 2025 (55).
Applying an objective construction test drawing on Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd and HMRC v Mabbutt, the Tribunal found that a reasonable recipient would not have understood the original assessment to include a distinct liability to the unauthorised payments surcharge under section 209 FA 2004, since the assessment did not refer to section 208 or 209, contained no breakdown, and the amount assessed bore no obvious relationship to a combined charge and surcharge (62-70).
Following the Upper Tribunal's decision in Fluid System Technologies (Scotland) Ltd v HMRC [2025] UKUT 278 (TCC), the Tribunal held that while the review process could vary the amount of an assessed liability, it could not be used to introduce a separate liability, namely the surcharge, that had not been part of the original assessment (56-58, 72, 73).
On the facts, the Tribunal found that £78,000 was transferred from Mr Reed's QROPS to DMSL on 13 November 2014, and that he received £59,280 from DMSL shortly thereafter as a consequence of the purported Snowdrop investment. This payment fell to be treated under section 161(3) and (4) FA 2004 as made from sums held for the pension scheme, and was not an authorised member payment under section 164 FA 2004 (77-80).
The Tribunal accepted Mr Reed's evidence that he genuinely believed the arrangements were legitimate and regarded himself as a victim of a pension scam, but held this did not alter the legal characterisation of the payment (79).
The Tribunal found the value of Mr Reed's pension rights immediately before the payment was £237,025.20, 25% of which was £59,256.30, a threshold exceeded by the £59,280 payment received, meaning the conditions for the surcharge would have been satisfied had it been validly assessed (85).
Outcome
The appeal was allowed in part (88). The discovery assessment issued on 20 March 2019 was validly issued and correctly found the £59,280 payment to be an unauthorised payment, with the Appellant liable to the unauthorised payments charge under section 208 FA 2004 in the sum of £23,712 (87, 91).
The review conclusion dated 2 May 2025 was set aside insofar as it upheld liability to the unauthorised payments surcharge under section 209 FA 2004, as that liability had not been included within the original assessment and could not be sustained through the statutory review process (89). Subject to that amendment, the review conclusion was upheld (90).
Major issues / areas of contention
- Whether the discovery assessment issued on 20 March 2019 was validly made under section 29 TMA 1970, including whether the conditions in section 29(4) or 29(5) TMA 1970 were satisfied.
- Whether the discovery assessment, as originally issued, included an assessment to the unauthorised payments surcharge under section 209 FA 2004.
- Whether liability to the unauthorised payments surcharge could be introduced or sustained through the statutory review process under sections 49C and 49E TMA 1970 where it was not included in the original assessment.
- Whether the £59,280 payment received by the Appellant constituted an unauthorised payment under Part 4 FA 2004.
- Whether the value of the payment exceeded the statutory 25% threshold under section 210 FA 2004 so as to trigger the unauthorised payments surcharge.
- The effect of strict statutory time limits under Regulation 3 of the Registered Pension Schemes (Discharge of Liabilities under Sections 267 and 268 of the Finance Act 2004) Regulations 2005 on the Appellant's ability to seek discharge of the surcharge.