HMRC revealed that nine men and two women were arrested for suspected fraudulent reclamation of income tax relief on pension contributions, contrary to the Pension Tax rules under Part 4 of the Finance Act 2004, following raids in the north-west and Midlands.
An estimated £2.5m in tax relief is believed to have been fraudulently acquired.
HMRC is working in close cooperation with the Pensions Regulator (tPR) and the Financial Services Authority (FSA). Fourteen premises were searched including residential addresses in Merseyside, Greater Manchester, Staffordshire, Worcestershire and Cumbria.
John Fox, director at Liberty Sipp, said it was likely that the arrests were a result of a legacy issue prior to A-day, before the FSA regulated Sipps.
“This looks like bogus schemes have been set up. It's possible the auditors of the Sipp operators brought this to HMRC's attention. We’re audited regularly to ensure the contributions we say are going into the Sipp actually are.”
He added that the investigation and subsequent arrests could be seen as one of the benefits of having the FSA regulate Sipps.
Tom McPhail, head of pensions research at Hargreaves Lansdown, commented: “This is unfortunate because it will tarnish the whole pension sector and will inevitably have a detrimental effect on relations between HMRC and the Sipp industry.”
Andrew Tully, senior pensions policy manager at Standard Life, added: "The Sipp providers involved are likely to be very small players - one of the advantages of using established trusted brands is that the governance arrangements in place should ensure this type of activity can't take place."
Mike O’Grady, HMRC’s assistant director of criminal investigations, north-west, said: “We work closely with other financial regulators to ensure that suspected fraud is fully investigated and any criminals attempting to defraud the public purse in this way are detected and stopped. This is an unusual investigation into what we believe to be an organised attack on tax relief available on self-invested pension schemes. We don’t expect to know the full scale of this suspected fraud until we have assessed all the evidence collected.”
Tony Hobman, chief executive of tPR, stressed that the vast majority of pension schemes are “well served by dedicated individuals who are exemplary in protecting members’ interests”.
He continued: “Building on high standards of professionalism and securing good governance is more, not less, important in these difficult times and we must all remain alert through the economic downturn. We will continue to work closely with our UK regulatory partners to protect UK pensions for the long term, and will deploy our regulatory powers as appropriate.”
Documents, paperwork, mobile phones and computers were seized during the property searches, and the individuals arrested are being questioned.
UPDATE: All 11 suspects have now been bailed until September.
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