In the case of NBC (Administration Services) Limited v HMRC, the First-Tier Tribunal (FTT) allowed an appeal against HMRC's decision to withdraw the registration of two pension schemes. 

Events leading up to deregistration

In the case of one scheme, the Headforte Pension Scheme ("Headforte"), HMRC wrote to NBC, the scheme administrator, in December 2018 saying that it was of the view that registration of the scheme should be withdrawn, citing grounds (za) and (zb) of section 158 of the Finance Act 2004 (FA04).  Ground (za) allows HMRC to withdraw registration if it appears to HMRC that the scheme has not been established, or is not being maintained, wholly or mainly for the purpose of making payments that are authorised pensions or lump sums.  Ground (zb) applies if it appears to HMRC that a person who is the scheme administrator for FA04 purposes is not a fit and proper person to be the scheme administrator.  On the same day HMRC served an information notice on Headforte's administrator asking for information about investments held since 5 April 2012.  In January 2019 NBC appealed the information notice, asked HMRC for the evidence for its assertions that grounds for deregistration existed and sought confirmation that deregistration would be stayed until the matter was resolved.  However, in June 2019 HMRC wrote to NBC informing it that registration had been withdrawn and referring to ground (c) (significant failure to provide information to HMRC) and (g) (a scheme sponsoring employer had been dormant for at least a month during the year leading up to deregistration).

The events leading up to deregistration of the other scheme, The Isles and Storer Pension Plan ("Storer") were broadly similar, save that HMRC did not seek to rely on ground (za).

The FTT's consideration of the deregistration process

The FTT concluded that the process that led to the deregistration of the schemes was flawed.  The FTT said that, other than in the most extreme circumstances, it would be wholly inappropriate to deregister a scheme with no warning. HMRC had at no point summarised its analysis of the evidence it had gathered and invited NBC to comment on it.  Nor did it invite NBC to draw HMRC's attention to any factors which might militate against deregistration even if the conditions for deregistration were satisfied.  HMRC's failure to engage with NBC despite NBC's reply to the "minded to deregister" letter meant that NBC was unable to address HMRC's concerns.  NBC did not know why HMRC thought it was not a fit and proper person to be the scheme's administrator and so could not produce evidence that might disprove HMRC's assertions or suggest other ways (less drastic than deregistration) of addressing any residual concerns.  The FTT said that, "Whether NBC could have addressed HMRC's assertions is neither here nor there; the point is that, despite asking, they were given no opportunity to do this."

Were the statutory conditions for deregistration met?

In relation to Headforte, the FTT acknowledged that HMRC had evidence from its enquiries that the scheme had been set up for the purposes of facilitating overseas transfers from schemes registered in Ireland where Irish legislation would not have permitted those transfers to be made directly from the Irish schemes.  The FTT said it could see why HMRC might have concluded that ground (za) (scheme not established/maintained wholly or mainly for purpose of paying authorised benefits) was satisfied.

In relation to ground (zb) (scheme administrator not a fit and proper person), the FTT concluded that HMRC's real concerns were that an individual (Mr I) who had been involved in NBC was involved in pension liberation.  The FTT concluded that Mr I had connections with individuals who had been involved in pensions liberation projects, but that there was no direct evidence before the FTT that would enable it to conclude that Mr I had personally been involved in pensions liberation.  Even assuming there was sufficient evidence to conclude that Mr I was not a fit and proper person to be involved with a pension scheme, HMRC had not investigated to what extent Mr I had remained involved with the schemes.

In relation to ground (zb), the FTT noted that by the time HMRC wrote its "minded to deregister" letter, an individual referred to as "MA" was the only director of NBC.  By MA's own admission, she did not have skills and experience in pensions administration.  The FTT found that this would have been sufficient to justify a finding that NBC was not a fit and proper person to be a scheme administrator.  

In relation to ground (c) (significant failure to provide information to HMRC), the FTT agreed that failure to provide information contained in HMRC's information notices would be a significant failure.

As regards ground (g) (dormant sponsoring employer), the FTT acknowledged in relation to Headforte that it was a matter of public record that the scheme's sponsoring employer had been dormant during the period in question.

HMRC's exercise of its discretion to deregister

The FTT was clear that the fact that some deregistration conditions were satisfied was not the end of the matter.  The legislation gave HMRC discretion to deregister and the FTT was entitled to review that discretion.  The FTT said that the consequences for a pension scheme and its members of a scheme being deregistered were so serious that deregistration should be an act of last resort.  The failings of a scheme administrator should not automatically be visited on the scheme's members.  HMRC should have considered whether any of the identified grounds for deregistration were serious enough to potentially warrant deregistration and, if so, whether those failings could be addressed in another way.  However, there was no evidence that HMRC had engaged with NBC or explored any of these points at all.

With regard to ground (zb) (administrator not fit and proper person), the FTT said there was no evidence that HMRC explored with  NBC whether this concern could be addressed by hiring better directors or NBC being replaced by a different administrator.  It would have been unreasonable for HMRC to deregister the scheme without exploring other options with NBC.

With regard to ground (c) (failure to provide information to HMRC) the FTT noted that the information notices had been appealed.  The FTT held that on that basis it would have been wholly unreasonable of HMRC to take the failure to provide information into account in deciding to deregister.

With regard to ground (za) (scheme not established or maintained wholly or mainly for the purpose of paying authorised benefits), the FTT said that HMRC did not establish whether the Headforte scheme was still being maintained for its original purpose or whether it was now being operated for the whole or main purpose of providing authorised benefits.  It would not have been reasonable for HMRC to deregister a scheme simply because of a historic failure, but HMRC had not addressed that point. 

With regard to ground (zg), the FTT noted that a sponsoring employer may become dormant "in perfectly benign circumstances".  The FTT said that HMRC would not have been acting reasonably in deregistering a scheme simply on the basis that the employer was dormant without further inquiry as to the implications of this for the scheme.  However, HMRC had not addressed this point.

The FTT's conclusions

The FTT concluded that the registrations of Headforte and Storer should not have been withdrawn.  It directed that (subject to any further appeal) they should each be treated as having remained a registered pension scheme.  (It upheld deregistration in relation to a third scheme which was effectively dormant.)  The FTT made clear that HMRC remained free to revisit the question of deregistration.  The FTT said that its decision was concerned with how HMRC reached its decisions rather than the decisions reached.

Our thoughts

The statutory grounds for deregistration are broad, so this FTT decision is likely to come as a relief to those involved with SSASs and SIPPs.  Key lessons from the FTT decision are:

• other than in the most extreme circumstances, HMRC should not deregister schemes without warning and should give scheme administrators the opportunity to address any concerns which HMRC has about whether the scheme should remain registered;
• the mere fact that a condition to deregister is met does not automatically mean that it is appropriate for HMRC to deregister a scheme.  Where the members of a scheme are not party to any malpractice, deregistration should be a last resort and HMRC should consider whether a scheme's failings can be addressed in another way; 
• where the issue is that the scheme administrator is not a fit and proper person, HMRC should consider whether the issue can be addressed via the administrator taking on more suitable personnel or via a change of administrator;
• the FTT will consider it wholly unreasonable for HMRC to deregister a scheme on the ground of failure to provide information if the relevant information notice is being appealed;
• where the ground for deregistration is the purpose for establishing or maintaining the scheme, the FTT will not regard it as reasonable for HMRC to deregister the scheme because of a historic failure that no longer applies;
• a scheme should not be deregistered solely because of a dormant sponsoring employer without HMRC making further enquiry as to the implications for the scheme.

The FTT said that its decision was concerned with how HMRC reached its decisions rather than the decisions reached.  Nevertheless some of the FTT's comments (eg that deregistration should be a last resort in cases where scheme members are not at fault) do appear to go to the question of whether a scheme should be deregistered at all.