HM Revenue & Customs has declined to respond to a Freedom of Information (FOI) request sent by International Adviser regarding overseas pensions.
The FOI asked HMRC to disclose what type of oversight and due diligence it carries out on qualified overseas recognised pension schemes (Qrops) and recognised overseas pension schemes that feature on its Rops list.
IA also asked what conditions would trigger a review of Qrops managers.
Criteria and recognition
The request was prompted after IA was contacted about concerns regarding HMRC’s list and how timely the taxman’s reviews of overseas pension schemes are; after clients reported problems in dealing with schemes that were removed from the list.
HMRC specified that, even though the schemes on the Rops list meet its criteria, this does not mean they are recognised by the Revenue.
Additionally, it said it does not set out guidance or the levels of due diligence for the schemes to follow, because they are managed by overseas companies.
This is a similar problem the victims of London Capital & Finance (LCF) faced, as the firm was an individual savings account manager and featured on HMRC’s Isa list, but that does not mean it was recognitsed or endorsed by the taxman.
‘Not in the public interest’
The watchdog declined IA’s FOI as it claimed there wasn’t a high enough degree of public interest and that sharing such information could help fraudsters and evaders shine a light on its procedures.
HMRC wrote: “We believe that disclosing this level of detail regarding our pensions compliance activity would allow opportunistic individuals and would–be avoiders to identify where we are devoting resources and arrange their activities to escape challenge, thus putting at risk proper assessment of tax.
“Section 31 [of the FOI Act] is a qualified exemption which means that we must consider whether the balance of the public interest favours withholding or disclosing the information. We accept that there is strong public interest in ensuring that we are accountable for our activities and are as transparent as possible about the way resources are utilised.
“Publishing the information requested would, on the face of it, reassure the public that our compliance activities are fair and robust and applied equitably across the range of customers. Against that, we have taken into account that we are subject to review by external bodies; such as the National Audit Office, the Adjudicators Office and the Public Accounts Committee, so the public interest in our accountability is met by the oversight of those bodies.
“There is, of course, a strong public interest in the law being enforced properly so that the tax burden is shared equally. Anything that might assist those intent on avoiding tax is not in the public interest.
“Evasion and avoidance unfairly shift the tax burden onto honest taxpayers and that is not in the public interest. Anything that puts at risk our compliance activities could undermine public confidence in the tax system.
“This could damage the general climate of honesty among the overwhelming majority of taxpayers who use the system properly and that is not in the public interest. So, on balance, we conclude it is not in the public interest to set aside the exemption,” the taxman added.
Greater industry understanding
David White, managing director at QB Partners, told IA that the taxman is not helping the pension sector by following the rules so closely.
“HMRC seem to be sticking to the letter of the law of the freedom of information rules rather than making any effort to help the industry understand how they manage the Qrops list,” he said.
“HMRC have always made it very clear that, in adding a scheme to the list, they are not approving or endorsing/vouching for that scheme. If an overseas pensions scheme meets the Qrops criteria it can be added to the list.”
So what do these schemes have to do?
White explained they have to “meet various ongoing reporting requirements and, if the scheme does not satisfy the reporting requirements or any other of the HMRC criteria, it can be removed from the list without notice”.
“UK schemes are required to check the HMRC Qrops list before transferring, as a part of their due diligence, and are not permitted to transfer to a scheme which is not on the list. If a transfer to a scheme which was not on the list was made, an unauthorised payment charge to the member may arise in the extreme.
“HMRC will review the reporting information that they receive from schemes, which is primarily around the payment of benefits. Other reviews of the list seem to be triggered either by a change in HMRC policy – for example the introduction of the pension age test in 2015 which saw hundreds of schemes being removed from the list across many jurisdictions – or by a review of a particular jurisdiction, for example when the Hong Kong Orso schemes were removed from the list.
“Perhaps HMRC are reluctant to disclose details of their process, so that they are able to carry out reviews, subject to resource being available, as and when they see fit, perhaps as a result of a series of complaints, or other identified trends in a particular overseas jurisdiction. Also, they do not wish any ‘guidance’ that they might issue to be misinterpreted as advice,” White added.
“Finally HMRC have stated, ‘We believe that disclosing this level of detail regarding our pensions compliance activity would allow opportunistic individuals and would-be avoiders to identify where we are devoting resources and arrange their activities to escape challenge, thus putting at risk proper assessment of tax’.
“I do not believe that this is why International Adviser was asking these questions and it would be very difficult for ‘would–be avoiders’ to flout the rules and avoid tax.
“However, I do think it would be useful for the industry to have a greater understanding of HMRC’s approach in this area.”
