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Tax sanction imposed as retrospective registration of floating charge fails to satisfy authorised employer loan requirements
United Kingdom | Publication | January 2023
In a shot across the bows to employers tempted to short-circuit the legal charge registration requirements, in Nilebond Ltd v Revenue and Customs Commissioners [2023], a scheme sanction charge of £15,000 was levied. The tax tribunal ruled that a loan made by an occupational pension scheme to a sponsoring employer secured by an unregistered floating charge did not comply with the formalities for "authorised employer loans" under the Finance Act 2004. In addition, retrospective registration of the charge with Companies House after the loan had been repaid was no remedy.
The pension scheme had advanced loans of £37,500 to the sponsoring employer in 2017 secured by a floating charge over all the undertakings and property of the employer. The loan was repaid in full by two instalments in March and November 2018. The charge was not registered with Companies House within 21 days of it being made.
In January 2019, HMRC imposed a scheme sanction charge of £15,000 on the basis that the loan was an unauthorised employer payment because it had not been correctly registered. The employer then successfully applied to the County Court for an extension of time and the charge was delivered to Companies House on August 5, 2019.
The employer appealed to the tribunal arguing that the time limit extension for registering the charge "cured the defect retrospectively". HMRC maintained that the loan was not an authorised employer loan.
The employer appealed to the tribunal arguing that the time limit extension for registering the charge "cured the defect retrospectively". HMRC maintained that the loan was not an authorised employer loan.
The tribunal upheld the scheme sanction charge. A loan by a pension scheme to a sponsoring employer that was subject to an unregistered charge was not "secured by a charge which is of adequate value" within the meaning of the legislation and was not therefore an authorised employer loan. An unregistered charge was unenforceable against other creditors and failed to meet the legal requirements of taking priority over any other charge.
The tribunal also held that it was not possible to amend that defect by retrospective registration. At the time the loan was effective, the charge had not been registered at Companies House and, although it was subsequently registered, it was unprotected from other creditors’ rights during the interim period. It followed that the loan had not been "secured by a charge" because throughout the existence of the loan, the pension scheme was in the same position as any other creditor.
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