Where the revenue gave retrospective notice of its withdrawal of approval of a pension scheme under section 591B(1) of the Income and Corporation Taxes Act 1988, the date for the purposes of section 591C(1) when the charge to tax arose in respect of that scheme was the date from which approval ceased to have effect and not the date when approval of the scheme was withdrawn.

The Supreme Court so held (Lord Carnwath and Lord Hodge JJSC dissenting) in allowing an appeal by the taxpayer, the John Mander Pension Trustees Ltd, against the order of the Court of Appeal (Moses, Patten and Beatson LJJ) [2013] EWCA Civ 1683; [2014] 1 WLR 2209; [2014] WLR (D) 12 whereby it had a affirmed the decision of Vos J sitting in the Upper Tribunal (Tax and Chancery Chamber) [2013] UKUT 51 (TCC) to affirm the decision of the First-tier Tribunal on 28 October 2011 to dismiss the taxpayer company’s appeal against two assessments for 2000–01 of £475,200 each, made by the Revenue and Customs Commissioners in 2000 and 2007 in respect of its pension scheme under section 591(C) of the 1988 Act. The taxpayer had appealed against that assessments on ground that they should have been in respect of the tax year 1996–97, so that they were either invalid or out of time.

Sections 591A and 591B(1)(2) set out the three ways by which approval of a pension scheme could be withdrawn. By section 591B(1): “If in the opinion of the Board the facts concerning any approved scheme or its administration cease to warrant the continuance of their approval of the scheme, they may at any time by notice to the administrator, withdraw their approval on such grounds ... from such date ... specified in the notice.”

By section 591C: “(l) Where an approval of a scheme to which this section applies ceases to have effect ..., tax shall be charged in accordance with this section. (2) The tax shall be charged under Case VI of Schedule D at the rate of 40% on an amount equal to the value of the assets [of the scheme] ... immediately before the date of the cessation of the approval of the scheme ...”

LORD SUMPTION JSC said that, although the charge was in reality a levy on the capital value of the fund, section 591C(2) imposed it as a charge to income tax under Case VI of Schedule D. Here, the scheme in question had ceased to qualify in 1996. The revenue had withdrawn approval in 2000 under section 591B(1) but with effect from 1996. Under section 591C, the 40% tax charge arose at the time when the scheme ceased to have effect. The question was whether that: was the tax year 2000–01, when notice had been given, or 1996–97 when the notice had taken effect. It mattered because there was a limitation period for taxes. The revenue said that the scheme had been approved until its status was changed by the decision to withdraw approval in 2000. However, the “cessation of approval” in section 591C(2) had to refer back to the opening words of subsection (1), which identified the condition on which the charge to tax arose (“Where an approval … ceases to have effect …”). As a matter of ordinary language, that meant the time with effect from which the previous approval of the scheme no longer had effect. That was obvious in a case falling within section 591A or 591B(2). In a case like the present falling under section 591B(1), it meant the date, specified in the revenue’s notice, from which approval was withdrawn, which was the functional equivalent. Likewise, other conditions for liability to the tax charge in section 591C(4)–(6A) only made sense on the footing that the “cessation of the approval of the scheme” was the effective date of the withdrawal of the approval and not the date of the notice itself. Any element of retrospectivity was required by the statute, which expressly empowered the revenue to withdraw approval with retrospective effect. In a case like the present that could not be regarded as an injustice. When the revenue had withdrawn approval with effect from an earlier date it had merely been recognising the facts as they had been ever since 1996 when the scheme had been changed so that it no longer qualified for approval. It was true that if the tax were assessed for 1996–97 interest would in principle be chargeable from that date, but that simply reflected the fact that the scheme had continued after 1996 to receive tax benefits to which it had not been entitled. As for the suggestion that such view of the law prevented the revenue from taxing schemes if they only learnt of the change some years later, the revenue had ample statutory powers for dealing with that problem by requiring the automatic provision of information about changes in schemes which affected approval. They had in fact exercised those powers but only with effect from 2003, too late to affect the present case.

LORD NEUBERGER OF ABBOTSBURY PSC and LORD REED JSC delivered concurring judgments.

LORD CARNWATH and LORD HODGE JJSC delivered dissenting judgments.