Tax penalty facing pension fraud victims is ‘huge injustice’
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HM Revenue & Customs has remained ‘resolute’ in its pursuit of tax penalties that will end up being paid out from compensation awarded to pension fraud victims.
As reported by FT Adviser, Standard Life Master Trust has been working hard to onboard 7,000 members of failed pension schemes, many of whom are victims of pensions fraud.
This includes 500 victims of the Ark pension scheme fraud, who have been looked after by Dalriada Trustees since 2011 when The Pensions Regulator stepped in.
These victims and others were awarded some level of redress from the Fraud Compensation Fund, after years of campaigning by Dalriada, the Pension Scams Industry Group and others.
But for many, however, the pain has not ended. In addition to losing savings, HMRC has levied punitive tax charges of up to 55 per cent on money that was fraudulently moved within schemes.
Despite being victims of fraud, the taxman has held out his hand for tax charges owed on the unauthorised payments, and on those members known to have received or been eligible under the Ark scheme to receive such a loan.
The tax bill has been calculated as 40 per cent plus 15 per cent of the loan amount, plus interest at statutory rates while the tax remains unpaid.
HMRC — despite intense campaigning through the legal system and in government committees — had a High Court ruling in its favour in 2023 in relation to Ark and, in September 2024, was allowed to start the process of collecting its dues.
Life-changing penalties
As campaigner Margaret Snowdon OBE, chair of PSIG, has said, these tax charges “have been unresolved for over a decade and hanging like a sword above members’ heads.”
Snowdon told FT Adviser: “It might be too late to stop the machinery of HMRC, which is already moving.
“We are still having conversations to help these victims but the tax laws are such that, if a scheme was approved by HMRC and then does naughty things, then once the scheme becomes deauthorised, any member in it will face the consequences.”
She called the Ark arrangement a “particularly bad one”, trying to be too smart, with its organisers arranging loans within schemes.
But although it has been proven this was not done with the “connivance” of members, who were advised and assured it was all above board, according to HMRC, they have broken the law.
This is one reason Snowdon has found it frustrating to talk to many MPs, who are all sympathetic towards the victims, but will not go against HMRC.
Ark: Timeline of a pensions disaster
2010: Ark Business Consulting LLP sets up six pension schemes, giving members early access to their pension money using maximising pensions value arrangements (loans).
December 2010: The Pensions Regulator investigates the scheme and the 5 per cent initial fees. By H1 2011 the Ark scheme ceases operations.
May 2011: The Pensions Regulator appoints Dalriada Trustees to oversee the Ark pension schemes.
June 2011: Dalriada obtains a freezing injunction against the Ark Companies to prevent the dissipation of transfer fees and starts legal action for their return.
December 2011: A High Court judgment rules that loans from the schemes were “unauthorised payments” and “a fraud on the trustees’ powers”. HMRC seeks to charge 55% tax on the unauthorised withdrawals.
2013: Dalriada challenges HMRC through the courts.
September 2016: Former Treasury secretary David Gauke says there will be “no amnesty” for the Ark victims.
2020: A tax tribunal case in 2020 confirms the legal position that HMRC can make tax charges on the loan amounts. This is hotly contested.
2020: FCF agrees that victims can be given compensation.
March 2023: A Tribunal confirms former Ark members are liable for tax charges on these loans, despite their status as victims of fraud.
August 2024: Standard Life Master Trust is chosen to be the receiving pension scheme for 7,000 members, approximately 500 of whom were Ark victims.
September 2024: HMRC starts collection process for the tax charges on unauthorised loans
Source: HMRC/FSCS/FT Adviser/Gov.UK/Transparency Task Force/Dalriada
She said: “The amount of tax penalty at stake here is life-changing for most people. They have already have lost a lot because of the fraud — basically most or even all of their pension.
“And then what little compensation they may get will end up being paid to the taxman.
“The simple reason for this is that HMRC does not recognise that people do things because bad people advise them to.”
While the tax bills will come, despite intense lobbying, Snowdon said there was a chance that individuals could push back against their bills, providing that HMRC sends the request for tax penalties to the members, rather than demanding that it is taken from the FCF’s redress before it gets paid into SLMT.
Snowdon added: “The stars were so badly aligned. The playing field was not level. We are still asking HMRC to be lenient to victims of fraud, or to offer them the sort of concessions that some large companies get.”
However, she says HMRC would not get as much tax revenue if they offer a deal, and the government needs the tax coffers to be filled.
HMRC response
A spokesperson for the HMRC said: “We sympathise with people who may have lost money by entering such arrangements and handle these on a case-by-case basis.”
The body is required by law to collect tax on unauthorised payments from pensions.
However, the spokesperson added: “We take the wellbeing of all taxpayers seriously. Anyone who is worried about a tax liability should contact us as soon as possible to talk about options.”
None of us are going to give up until what’s so clearly wrong with the system has been put right.
It is understood that if individuals can show hardship, the taxman can give individuals more time to pay, but as Snowdon said, “they could still be paying back tax debt for decades, given how big some of this liability is. And some of these members, of course, do not have decades.”
Campaigners such as the Transparency Task Force and PSIG have heard stories of people who, if they have not been able to pay, have found bailiffs at their doors.
Others have been paying back tax liabilities but have not been able to pay their mortgages, so the banks have foreclosed on them.
Snowdon said: “In 2019 when I calculated the cost to the Treasury for relief for victims of fraud — not just Ark but others — it came to about £20mn.
“They chose not to settle and that bill would now be about £40mn. It’s still a drop in the overall tax bucket, but they stand on principle.”
Vulnerability
Helen Dean, chair of SLMT, highlighted the vulnerability of many of these members.
She told FT Adviser the effect of this hanging over many of the victims has been devastating. She said: “People are suicidal, distraught, afraid.”
One such lady was Sue Flood, who together with her husband lost approximately £250,000 as a result of being advised by a “professional adviser” to put their pension money with Ark.
She recently told MPs there had been so little accountability by the regulators who were created to prevent consumer harm.
Andy Agathangelou, founder of consumer advocacy group Transparency Task Force, said the way HMRC has been acting was “egregious”.
He said: “We have been campaigning long and hard to raise awareness of the egregious way in which HMRC has been chasing victims of financial crime for tax money; so damaging and ruthless is HMRC’s approach to investment/pension/fraud victims that some have been close to suicide; from NHS workers to ex pro footballers.
“Those in the know will tell you about HMRC’s frankly inhumane approach to crime victims, and how they choose to not use resource where they actually should — hounding the perpetrators out of the sector.”
The TTF has had recent dialogue with Pensions Minister Torsten Bell about all this, alongside relentless campaigners such as Flood, Snowdon and lawyer Carly Barnes-Short, a lawyer and wife of a high profile victim.
Agathangelou said: “As far as I’m concerned, all three deserve medals for their pro bono work in this space; it’s truly inspiring.
“All we are all asking for is fair and humane treatment for the victims. This would bring the UK into line with civilised countries whose tax authorities seem capable of differentiating between a victim of crime and a tax dodger.”
Not giving up
For Dean and others in the industry, this remains one of the deepest injustices: that victims of scams are treated as offenders by the very tax system designed to protect them.
While Snowdon said it “might be too late” to get full relief for Ark members, it was not too late to push for some offset or concession.
Meanwhile, she said it was vital to keep fighting for fairness for other victims of pensions fraud.
Agathangelou said: “Hopefully we’ll get there, sooner or later, but one thing is sure — none of us are going to give up until what’s so clearly wrong with the system has been put right.”
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