Trustees and Administrators of Self-Invested Personal Pensions (SIPPs) and Small Self-Administered Schemes (SSAS) are alarmed at recent HMRC action when processing tax reclaims for member contributions that will have serious implications for the funding of property purchase and the payment of member benefits.

It has been normal practice for trustees and scheme administrators to take into account the amount of an expected tax repayment claim when calculating the value of the assets of SIPP and SSAS for the purposes of:

• Calculating benefits including tax-free cash sums.
• Determining the maximum amount that can be borrowed.
• Funding of the cost of property purchase/or development.

Recently HMRC issued notices in respect of a number of schemes that state:

“HMRC reserves the right only to make the payments that it is satisfied are due. Your claim is subject to a random security check and there will be delay in the repayment being issued.”

It is believed that this is the first time such notices have been issued by HMRC and has come as a complete surprise to administrators of SIPP and SSAS arrangements. It is believed that HMRC has become concerned with the number of large repayment claims being made on behalf of individual members following the changes that came into force on 5 th April 2006 which allow members to contribute up to 100% of their earnings to a registered pension scheme rather than being restricted to a maximum of between 17.5% and 40% that was permissible under the regulations in force prior to the 6 th April 2006.

At this time HMRC is unable to give any indication of how long these audits will take or what will be involved.

The professional body that represents the providers and administrators of SIPP and SSAS arrangements, the Association of Member Directed Pension Schemes (AMPS), is so concerned that it is raising the matter at its upcoming meeting with HMRC in June.

David Bradbury, Head of Taylor Patterson's SIPP and SSAS Division says “This unexpected development means that scheme administrators and trustees may be prevented from proceeding with the payment of benefits, property purchases, borrowing and other investment plans that rely on the timely receipt of tax repayments. Also, will HMRC take the view that the receipt of an anticipated tax repayment should not be taken into account when calculating a scheme's assets. If so, to do so might result in borrowing an/or benefits limits being exceeded resulting in “unauthorised member payments” and the imposition of a punitive tax charge by HMRC.”

It does seem that these “audits” only apply to member contributions and not those paid by employers as the latter are paid gross and treated as a business expense for the purposes of calculating the employer's tax liability. David Bradbury went on to say “This puts member funded schemes at a disadvantage to those funded by employers. It is hoped that AMPS will be able to agree a practical way forward with HMRC at its June meeting”.

29th May 2008