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Disclosure of Tax Avoidance Schemes - Are Pension Schemes affected
Ian Ward from our Amersham office discusses the implications for pension schemes of the new Tax Avoidance Schemes Regulations 2004.
In the March 2004 Budget the Chancellor of the Exchequer announced measures to combat perceived tax avoidance. The details followed in a Statutory Instrument, namely "The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2004", which came into force on 1st August 2004.
The Regulations require the providers and "promoters" of schemes which reduce an individual or company's exposure to Income Tax, Corporation Tax or Capital Gains Tax to notify the Revenue of the arrangement. Pension schemes, including the ever popular "do it yourself" arrangements, SSAS, SIPP and FURBS are bona fide retirement benefit schemes, but they also provide valuable tax benefits to both the company and the member. There is concern therefore that the Revenue will have to be notified of each new arrangement when it is established.
Paragraphs 3 and 4 of the Regulations give details of the types of "employment-related" arrangement to be notified to the Revenue. Paragraph 4 specifically includes arrangements where payments or assets are placed in a trust for the benefit of an employee (or for any class of beneficiary which could include an employee). This would include pension schemes.
Some professional associations involved in smaller "personal" (SSAS, SIPP and FURBS) retirement schemes expressed concern that these long standing arrangements, of which the Revenue are already well aware, would be caught by the legislation and as a consequence of the extra bureaucracy become more costly to administer. Indeed it would be strange if the Trustees of approved pension schemes had to write twice to the Revenue to both notify them of the new scheme and to apply for tax approval!
Fortunately, a careful reading of the Regulations shows that this is certainly not the case as far as SSAS and SIPP are concerned. Paragraph 4 of the Regulations lists the various types of arrangement which are exempt from the need to notify Inland Revenue. These include approved occupational and personal pensions or those applying for approval. The specific exemptions are given in Paragraph 4 (2) and 4 (4).
For FURBS (Funded Unapproved Retirement Benefit Schemes) the issues are less clear. There is no specific exemption set out in the Regulations for FURBS. When the Revenue's preliminary Guidance was published in March, we spoke to one of the Revenue contacts quoted in their News Release. He mentioned that the Revenue are content that the great majority of FURBS are bona fide retirement arrangements, which pay the taxes that are due. However, sometimes, in the Revenue's view, FURBS are misused. They were specifically NOT exempted from the need to disclose. Having said this, the Revenue recognise that they would be swamped with paperwork if every single FURBS was disclosed individually. Hopefully, common sense will prevail, although this places a responsibility for "judgment" on the provider.
Ian Ward, January 2005.