Of stealth, taxes and irksome tasks
“And the Town Clerk’s marriage is hereby dissolved” – So, according to the apocryphal story (told to generations of law students) from the days when divorce required an act of parliament (at a cost well beyond the means of unhappily married minor functionaries), hidden in the small print of a statute no one apparently read, almost anything could be concealed. And in this case probably no one cared apart from the town clerk himself and of course his wife: neither history nor myth relates whether she was as relieved as he, nor in what particular Tolstoyan mode they lived unhappily ever after. But the point is that the statute took effect to deprive the wife of her rights whether or not she had any notice.
How do you feel about the following examples?
- You park your car lawfully, carefully checking the signs for any notice of suspension, and come back two hours later to find it towed away by the council. Variants: (i) notice had been posted on a website; (ii) you received a text message which you chose to ignore; (iii) you parked outside your home for a month while on holiday.
- You deposit money with a bank advertising a variable rate of 5%. A year later you close the account and discover that the rate dropped to 0.1% the day after you opened the account, but you were never told. Perhaps the bank advertised the reduction in three newspapers: it’s just that you don’t read 5 point type in the Ipswich Chronicle or the Hounslow Gazette.
- You deposit money with a bank advertising a rate of 5% fixed for a year. But the small print buried in a 150 page customer agreement which you ticked a box to say you had read specifies that if you withdraw money on the last Wednesday before Lent you will instead receive 0.1% interest, and that your request to withdraw is irrevocable. And not altogether by chance (not unconnected with the timing of the marketing campaign) that was the very day you chose…
- The Government decides to reduce top rate income tax to 44% for everyone – except those born on a Friday, who have to pay 55%.
Don’t be silly, you say; these tricks don’t happen. And besides there’s the unfair contract terms law. And what about human rights?
What indeed. These things (or variants on exactly the principle of each of these deceptions) do happen. Thanks to the inimitable skills of the then Jonathan Sumption (in Abbey), unfair terms in consumer contracts can’t be set aside (no matter how unfair, how small the print) when they relate to price, the fundamental term of the contract. (Even when they don’t, forget trying to take such a case to the Financial Ombudsman: the staff there wilfully ignore unfair contract terms legislation, preferring to apply their own personal concepts of fairness undiluted by acts of parliament.) And as for article one of the first protocol of the European Convention on Human Rights, you have very little chance of running a successful A1/P1 argument in a British court on a matter relating to taxation.
In short your only protection against these grotesque examples of unfairness is the unpopularity they would bring down on the head of the perpetrator. But, as readers of this blog will know, the concept of shame having all but disappeared among our politicians and bankers, that of unpopularity is rapidly losing its force as repeated examples remove the last vestiges of untaintedness. And politicians from both sides have now calculated that the ultimate scramble for votes justifies promises to the majority whatever impact they have on the minority. We live in an age of Roman games and demagogism. That is how nastiness from the bedroom tax to the mansion tax get past the teenage think-tanks onto the agenda for government.
It is against this backdrop that one must view the curious cases surrounding the lifetime allowance charge for pensions. I’ve written about this several times (and even been written about on the subject in the Financial Times), and you will know that for people with a certain amount of money tied up in pensions, Parliament has decreed that they will be taxed if they don’t complete a form asking not to be. Parliament couldn’t simply tax everyone in this position: that would be retrospective legislation and would probably be challenged in court. But the legal objection vanishes if you had a free get-out. Of course every sensible person would use it, and so the measure would be completely useless. Unless – and that is why this belongs in this blog – government introduces the measures quietly and buries the detail in terms so complicated that professional advisers don’t understand it. And that is what they successfully did.
Among the 4000 people already caught (the tip of a far larger iceberg of pensioners who haven’t yet collided with the irresistible force of this legislation) are chairmen of banks, masters of livery companies and a past president of the Institute of Actuaries. Many are pillars of respectability, devoting their retirement to good deeds.
We know this, not only because of the freedom of information request discussed in the Financial Times article I mentioned, but because three of them applied to have their free get-out cards granted retrospectively and took their rejections to the First Tier Tribunal. You can find the cases on the wonderful British and Irish Legal Information Institute website, a catalogue of far more human misery than Tolstoy, Dickens or Zola ever contemplated: although the First Tier Tribunal is only the very outermost circle of the inferno of the law (chiefly because you shouldn’t normally have to pay HMRC’s costs when you lose – unless you’re allocated to the wrong “track”).
I don’t want to drown you in tedious technicalities, but these retrospective applications were for what is called “enhanced protection”, available only before April 2009: with the later forms Parliament explicitly deprived HMRC of any ability to consider late applications. It’s not difficult to see why.
The claims depend on whether the applicants had a “reasonable excuse” for not applying in time. It’s pretty much the same test as arises with feckless small businessmen who are minded not to pay VAT, and when caught seek to escape the extra penalties for failure to submit returns with excuses that are variously imaginative, delusional or just cheeky; and they quite properly get short shrift.
But while HMRC might want there to be a rigorous “ignorance of the law is no excuse” principle, the case law does recognise that there can be good reasons for missing deadlines. One can be reliance on professional advisers (remember not to treat this blog as legal advice!). Serious illness or physical impossiblity (systems failure, earthquake…) might be others.
What is particularly unfortunate is that the two cases heard outside these extreme circumstances involved people whose pensions were well over the headline levels, and who (the tribunal found) must easily have been aware of the applicability of the rules to themselves: their failure to do so was “for some inexplicable reason”. The tribunal viewed these applications with much the same antipathy as those of VAT avoiders, notwithstanding what to me are crucial differences: the pensioners did nothing to entwine themselves in new, complex rules (unlike starting a business where you know you have to learn about VAT), and they had nothing to gain by failing to apply for protection which would have cost them nothing. They were patently entirely innocent victims, not tax avoiders.
The case seems to me clearer for those trapped by the bizarre rules concerning pre-commencement pensions: rules which lack all intellectual coherence, are buried in the small print of complex legislation and are misunderstood by otherwise competent advisers. Here the reason for failure to apply on time is readily explicable. Are we seriously supposed to engage expensive advisers every time a finance bill appears – any more than to read 150 page customer agreeements, scan every newspaper in the land and search the website of every parking authority?
Both these cases were heard without (as far as I can see) any reference to the 3998 other lemmings who have since behaved the same way. If “reasonable” means what sensible people in a similar situation would do, such evidence may well be relevant. (I don’t think we need to explore the analysis of “reasonableness” set out by the by-then Lord Sumption in Willoughby – which is just as well, since I am as baffled by it as was Lord Reed.) And for those that involve the pre-commencement multiplier (which lies somewhere between Willoughby and Schleswig-Holstein in intelligibility), one could be forgiven for casting the Chancellor as Pied Piper leading the rodents with intent.
Dr Johnson bemoaned that when years come upon us, we find poring over books an irksome task. His observation was not merely ophthalmic. Most of us have better things to do than watch out for robbers in every possible guise: the task that civilisation devolves upon those who police society’s rules is important for all of us, and the insidious dereliction of that function deeply to be deplored.