Pensions: what’s new this week - 23 January 2023

Tribunal: employer loan must be registered to be authorised

The First-tier Tax Tribunal has held that a loan made by a pension scheme to its sponsoring employer was unauthorised because the charge securing it was not registered at Companies House: Nilebond Limited v The Commissioners for His Majesty’s Revenue and Customs. Under the Finance Act 2004 (FA04), loans made by a pension scheme to a sponsoring employer will be authorised (and therefore not subject to a tax charge) if they satisfy certain conditions. The conditions include that the loan must be ‘secured by a charge which is of adequate value’ and the charge must take ‘priority over any other charge over the assets’.

In this case, the loan was intended to be secured by a floating charge over all the undertakings and property of the borrowing employer. The employer was incorrectly informed that the charge did not need to be registered with Companies House (registration within 21 days is a requirement under the Companies Act 2006). The failure to register the charge meant it was void as against any liquidator, administrator or creditor of the employer. The Tribunal held that this meant the loan did not satisfy the authorised employer loan requirements: it was not ‘secured’ and the charge did not have priority over any other charges over the assets as required by FA04. The Tribunal also found that a retrospective order granted by the court to extend the deadline for registering the charge (after it was repaid in full) was not sufficient to rectify the situation: the subsequent registration was without prejudice to any other rights acquired in the interim period, so the charge did not take priority over other assets at any point during the existence of the loan and this could not be remedied retrospectively. Therefore HMRC was right in treating this as an unauthorised employer payment and levying a scheme sanction charge.

This case shows the importance of ensuring all formalities are complied with when transactions such as employer loans are entered into, including not just pensions law requirements, but those of other relevant legal areas such as corporate and banking.

Read the case.

Court of Appeal: EU pensions protected on bankruptcy

Another hearing has been held in relation to a case concerning whether pension schemes recognised for tax purposes in an EU member state are protected in UK bankruptcy proceedings: Wilson and another v McNamara and others. The Court of Appeal has upheld the previous judgment but left the position open to future challenge.

The case involved an Irish citizen with rights in an Irish pension scheme who was made bankrupt in England. Under UK legislation, rights in pension schemes registered under the UK Finance Act 2004 are excluded from the assets that can be recovered on bankruptcy. This did not cover pension schemes registered in other EU member states. The case was referred to the European Court of Justice (ECJ) to decide whether the UK legislation was contrary to EU law (it was brought before the end of the Brexit transition period). The ECJ held, in November 2021, that the exemption placed migrant workers at a particular disadvantage because, broadly, most migrant workers would have their pension rights in schemes established outside the UK which would not in general be approved for tax purposes in the UK. Therefore, it found that the UK law is indirectly discriminatory, unless it could be found to be objectively justified and proportionate. It did not rule on whether there was objective justification, but said this was a matter for the UK court.

The matter was referred back to the UK court to decide whether it should consider the question of justification. Lord Justice Nugee rejected the request from the trustees to consider that point, as it was not one that had been raised previously, and it was not procedurally appropriate to raise it at this stage. Therefore, he decided that the bankruptcy exemption in the UK legislation should be read as including assets in a scheme established in another EU member state that was recognised for tax purposes (that is, on the basis that the indirect discrimination was not justified).

In the most recent hearing, the Court of Appeal upheld Lord Justice Nugee’s decision not to consider the question of justification. Again, this was decided as a matter of court procedure and the judgment noted (as had Lord Justice Nugee) that this would not preclude anyone in further proceedings from arguing that the indirect discrimination was in fact objectively justified, leaving the door open to future challenge on this point in an appropriate case (although this may be unlikely to happen in practice due to the passage of time after the ending of the Brexit transition period).

Read the case.