A special commissioner upheld a decision of Revenue and Customs that additional voluntary contributions (AVCs) in excess of 15 per cent of taxpayer's salary in the year of payment were not deductible for income tax purposes in the light of ICTA 1988, s. 594, since there was no provision enabling employees to carry back excess contributions made in one tax year to the preceding or earlier tax years if they had not made contributions in those earlier years.

Facts

The taxpayer, an employee of the Ministry of Defence, had regularly paid AVCs into an approved statutory pension scheme. The monthly contributions had been paid automatically by his employer on his behalf by way of deduction from his salary. The AVCs had been within the limit of 15 per cent of his salary imposed by s. 594, and were accordingly deductible from his income for tax purposes.

In December 2000, the Ministry of Defence informed the taxpayer that, in the light of the financial difficulties being experienced by his pension provider, it would be prudent to consider switching both his existing fund of AVCs and future contributions to a different pension provider. Between January 2001 and September 2002 there was a period of administrative confusion during which the taxpayer paid no AVCs while the situation was resolved. In September 2002 the taxpayer made payments to a new provider representing the monthly payments he had missed. He also resumed monthly payments.

Since the total payments made in the year from April 2002to April 2003 exceeded 15 per cent of the taxpayer's salary for the relevant year, the Revenue refused his claim for further tax relief.

Issue

Whether the contributions in excess of 15 per cent of the taxpayer's salary in the year of payment were deductible.

Decision

The special commissioner (Howard M Nowlan) (dismissing the appeal) said that it was clear that the taxpayer had not been seeking to do anything other than make conventional AVC payments that would not have exceeded his 15 per cent of salary limit in any year. It was only because of administrative errors on the part of the Ministry of Defence or pension provider that the taxpayer had been involved in a two-year battle to clarify and regularise his pension position.

In view of the fact that the payments were in fact made in September 2002, and that s. 594 contained no form of ‘carry back’ provision, and that the total payments made in the year from April 2002 to April 2003 exceeded 15 per cent of the taxpayer's salary for the relevant year, the tax inspector dealing with this case had no option but to refuse the claim for further tax relief. Since the payments could not be treated as made in the earlier years, and the relieving provision contained no form of ability to carry back contributions, the taxpayer's appeal had to be dismissed.

Section 594 set the limit for tax relief at ‘15 per cent or such higher figure as the Board may in a particular case prescribe’. In the light of the fact that the taxpayer had not been seeking to do anything other than pay conventional AVCs and that his inability to do that had not been his own fault, it was to be hoped that those in whom the delegated power resided might consider allowing additional relief corresponding to 15 per cent of the taxpayer's salary in the relevant tax years.

(2006) Sp C 573.
Decision released 1 June 2006.