In a recent case, the Deputy Pensions Ombudsman decided that there is no legal obligation for employers to notify employees of the potential implications of updates to tax legislation. The relevant update in this case related to the payment of lump sums from registered pension schemes, and the tax potentially payable if too much time has elapsed between a member’s retirement and the payment of the lump sum.

What led to the complaint in this case?

The complainant in the case (Mr T) was a former employee of HMRC and a member of the Principal Civil Service Pension Scheme. He retired from employment in 2005. In June 2009 he received a letter from HMRC which stated that he was eligible for a Widow’s Pension Scheme refund of almost £14,000. The letter noted that taking the whole of the refund as a lump sum would be an unauthorised payment, which might be subject to a tax charge.

Mr T was given the option of taking some of the refund as a pension, to avoid the refund being taxed as an unauthorised payment. Mr T then contacted HMRC’s pensions team who informed him that the refund may be subject to a tax charge. Notwithstanding the information with which he had been provided both in writing and verbally, Mr T asked for the refund to be paid to him as a lump sum. He was told that it was his duty to inform HMRC about the unauthorised payment.

In 2012 Mr T received a tax bill from HMRC for over £5,000 in respect of the refund payment. The outstanding tax to be paid, including interest, stood at around £8,000, by the time the complaint was heard by the Deputy Ombudsman.

The complaint

Mr T argued that HMRC was under a legal duty to inform him of relevant changes in tax legislation. He claimed that the fact that they failed to do so should be treated as maladministration. He pointed to Cabinet Office Guidelines which state that members “must be informed that they will be liable to pay tax” yet he believed that he was not sufficiently well informed and as a result had suffered a significant tax liability.

No legal duty

The Deputy Ombudsman decided that there was no legal duty on HMRC as an employer to inform an employee of any relevant changes to tax legislation. She said that Mr T was provided with sufficient warning that taking the refund as a lump sum could result in a tax liability, and he could have obtained full details as to the amount of the likely tax charge if he had investigated further at the time. Mr T’s complaint was consequently not upheld.

While the question of whether an employer has a duty to alert employees to changes in the law is often one of degree, the inconsistent decisions of case law have not helped employers and employees to understand what level of duty, if any, is owed by the employer to employees to alert them to the potential consequences of their actions. Some cases have been decided in favour of employees who felt that they were given insufficient information by their employers as to the potential tax implications of a decision. Other cases have been won by the employers. In this case, it is clear that Mr T was given sufficient information by HMRC to ensure that the Deputy Ombudsman was prepared to decide in HMRC’s favour.

For further information please contact:

Michael Collins, partner, Pensions

T: 0121 234 0236 

E: Michael.Collins@gateleyplc.com


Leave a Reply

Your email address will not be published. Required fields are marked *

19 − ten =

This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.