Bruce Ian Joyce v HM Revenue & Customs, SPC 00491
| Jurisdiction | UK Non-devolved |
| Judge | Dr A Nuala BRICE |
| Judgment Date | 19 July 2005 |
| Respondent | HM Revenue & Customs |
| Appellant | Bruce Ian Joyce |
| Reference | SPC 00491 |
| Court | First-tier Tribunal (Tax Chamber) |
SPC00491
INCOME TAX – Schedule D Case III – annual payments - Appellant retired early relying upon a statement made by his employer about the amount of his pension – after his retirement he was told that the correct amount of his pension was less - he sued his employer for damages for negligence for inaccurate representations claiming an unidentified capital sum in damages – the proceedings were settled on the basis that the employer would pay the Appellant a stated annual sum in equal monthly instalments for the remainder of his life the amount being the difference between the incorrect amount of his pension and the lesser correct amount – whether the monthly payments were instalments of capital (as argued by the Appellant) – no – or whether they were annual payments and thus income (as argued by the Revenue) – yes – appeal dismissed – ICTA 1988 s18
THE SPECIAL COMMISSIONERS
BRUCE IAN JOYCE
Appellant
- and -
HM REVENUE AND CUSTOMS
Respondents
Special Commissioner: DR A N BRICE
Mr B J Rice, of Messrs B J Rice Associates Chartered Tax Advisers and Accountants, for the Appellant
Mr Tony Mear, HM Inspector of Taxes and Head of Appeal Unit Wales, for the Respondents
© CROWN COPYRIGHT 2005
PRELIMINARY DECISION
The appeal
1. Mr Bruce Ian Joyce (the Appellant) appeals against (1) a decision of the Revenue dated 19 September 2003 refusing a claim for error or mistake relief for the years ending on 5 April 1999 and 5 April 2000; (2) a decision of the Revenue dated 2 October 2002 amending the Appellant’s self-assessment for the year ending on 5 April 2001; and (3) a decision of the Revenue dated 15 January 2004 amending the Appellant’s self-assessments for the years ending on 5 April 2002 and 5 April 2003.
2. The disputed decisions were made because the Revenue were of the view that certain monthly payments made to the Appellant by his ex-employer were annual payments chargeable to income tax under Case III of Schedule D. The Appellant appealed because he was of the view that the monthly payments were instalments of capital and so were not chargeable to income tax.
3. I was asked to give a decision in principle on this issue with liberty to the parties to apply for another issue or other issues to be determined later.
The legislation
4. At the relevant time the relevant parts of Section 18 of the Income and Corporation Taxes Act 1988 provided:
“18(1) The Schedule referred to as Schedule D is as follows -
SCHEDULE D
Tax under this Schedule shall be charged in respect of -…
-
all interest of money, annuities and other annual profits or gains …
(3) The Cases are- …
Case III: tax in respect of-
(a) any interest of money … or any annuity or other annual payment … “
The issue
5. The Appellant retired early on the basis of a statement made by his employer about the amount of his pension. After his retirement he was told that the correct amount of his pension was less. He sued his employer for an unidentified capital sum and the employer settled the action on the basis that it would pay to the Appellant a stated annual sum which was the difference between the (higher) incorrect amount he had been told and the (lesser) correct amount. The annual payments were to be made by monthly instalments. It was agreed that the payments were not interest nor were they an annuity. It was also agreed that the payments were not payments of a pension assessable under Schedule E.
6. The issue for determination in the appeal was whether the monthly amounts were instalments of capital (as argued by the Appellant) or whether they were annual payments and thus chargeable to tax as income under Case III of Schedule D (as argued by the Revenue).
The evidence
7. One volume of documents was produced by the parties. There was also a statement of agreed facts. Oral evidence was given by the Appellant on his own behalf.
The facts
8. From the evidence before me I find the following facts.
The Appellant and his pension entitlement
9. At the relevant time the Appellant was employed as Chief Executive Officer of the Greenwich Healthcare National Health Service Trust (the Trust). He was entitled to a pension under the National Health Service Superannuation Scheme. In August 1994 he was fifty years old and he asked the Trust to provide a forecast of the amount of his annual pension if he were to take early retirement. He made it clear that the amount was critical to the decisions he would take about his future. In September 1994 he was told that his annual pension would be £43,091.19. Relying upon this information the Appellant applied for, and was allowed to take, early retirement with effect from 21 October 2004. The National Health Service Pensions Agency (the Agency) confirmed the amounts and on 1 November 1994 started to pay the Appellant his pension at the rate of £43,091.19 per annum by monthly instalments.
10. In November 1995 the Trust and the Agency advised the Appellant that mistakes had been made. They said that his correct annual pension entitlement was £38,015.40 and, from December 1995, his monthly pension would be reduced. The Appellant took legal advice and on 22 February 1996 his solicitors said that they would ask an actuary to calculate his loss of pension benefits as a capital sum such as would facilitate the purchase of an annuity payable from his early retirement date in the amount of the difference between the benefits which would have been paid to him if the original statements were correct and those which were being paid. Advice was received on 9 May 1996 that the sum of £127,350 was the appropriate capital value without any allowance for income tax.
The legal proceedings
11. On 17 June 1996 the Appellant commenced legal proceedings in the High Court against the Trust for damages for negligence for inaccurate representations made to the Appellant regarding his pension entitlements. The particulars of claim were:
“Loss of pension benefits being such capital sum as would facilitate the purchase of an annuity for the Plaintiff payable as from his early retirement date in the amount of the difference between:
(a) such pension benefits as would have been payable to the Plaintiff on his early retirement date based on the representations made to the Plaintiff; and
(b) such lesser pension benefits as are being paid to the Plaintiff from his early retirement date.”
12. The amount of the capital sum claimed was not stated in the writ nor in the particulars of claim. I accept the evidence of the Appellant that he then thought that, if he were successful in his claim, he would be free to use the capital sum in any way he chose and that there was no condition that he would have to buy an annuity.
13. In July 1996 the Trust entered a defence and counterclaim. The Trust denied liability and counterclaimed for overpayments of salary and pension contributions from 1991 to 1994 amounting to £11,185.53 paid to the Appellant by mistake. Discussions between the parties followed.
The negotiations for a settlement
14. On 19 February 1997 the solicitors for the Trust approached the Appellant’s solicitors with an initial proposal for settlement They said that, while the Trust remained of the view that it had a good defence to the Appellant’s claim, it did not wish to spend further time and money in brining the matter to court and so the Trust “would be prepared to waive its counterclaim and to agree to make a recurring annual payment of £3,000 per annum to your client for the remainder of his life in full and final settlement of this matter”. That offer was unacceptable to the Appellant whose solicitors replied on 24 April 1997 to say that the Appellant’s pension entitlement, as originally advised, was £43,031.19 and this was reduced to £38,015.40 as from 6 December 1995; accordingly the loss to the Appellant was £5,015.79 per annum. On 28 April 1997 the Trust’s solicitors wrote to say that the Trust “would be prepared to include [probably meaning increase] its offer to £5,015.79 per annum”. On 30 April the Appellant’s solicitors sent him a copy of the letter of...
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