The Government published a policy paper and draft Finance Bill provisions yesterday which will give HMRC very broad discretion to de-register a scheme if the scheme has a corporate sponsoring employer that has been dormant for a continuous period of at least a month in the one year period leading up to the de-registration decision. This change is due to take effect from 6 April 2018.
Broadly, a company is dormant during any period when it has no transactions that are required to be entered in its accounts.
In its original consultation on pension scams, the Government had proposed giving HMRC discretion to refuse to register new schemes with a dormant sponsoring employer, but its response to the consultation went further and said that HMRC would be given the power to de-register existing schemes with a dormant company as sponsoring employer.
The draft legislation also contains a power to de-register/refuse to register unauthorised master trusts. Those provisions will come into force on the date (expected to be in 2018) when the requirement for master trusts to be authorised comes into force.
The intended target of the legislation is registered schemes that are used as vehicles for pension scams, but the broad wording of the legislation means it could catch many scenarios where no scam is involved, particularly as the Finance Act 2004 definition of "sponsoring employer" includes a former employer. Examples of scenarios which could potentially fall within the ambit of HMRC's de-registration power include:
- a company that previously participated in the scheme has since become dormant;
- one of the scheme employers has been recently incorporated and whilst a new company it was dormant for at least one month during the past year;
- a dormant company has been substituted as the principal employer of a SSAS on the SSAS's previous principal employer being sold to new owners;
- the business of a SSAS's sponsoring employer is sold. The SSAS remains with its existing principal employer which then becomes dormant.
The wording of the legislation applies to all occupational schemes, not just SSASs. However, in practice it seems very unlikely HMRC would seek to de-register larger schemes that are obviously genuine pension schemes. The risk in relation to SSASs seems much higher, as de-registration of a SSAS is not going to attract public scrutiny in the way the de-registration of a large scheme would. HMRC's broad discretion gives rise to the risk that HMRC could seek to de-register SSASs as an opportunistic way of raising tax revenue, or use the threat of de-registration to give it leverage in any dispute between HMRC and scheme trustees. Under existing law, a scheme can appeal against de-registration, but the test is whether the tribunal considers registration ought to have been withdrawn, which obviously leaves a lot of room for interpretation.