Community (a Trade Union)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 December 2016 |
| Neutral Citation | [2016] UKFTT 824 (TC) |
| Date | 08 December 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
[2016] UKFTT 0824 (TC)
Judge Colin Bishopp
Mr Keith Gordon, counsel, instructed by H W Fisher & Company, Chartered Accountants, appeared for the appellants
Mr Tony Burke, presenting officer, appeared for the respondents
Income tax – PAYE – Trade union branch secretaries receiving honoraria – Whether branch secretaries office holders within Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), s. 5 – Yes – Determinations correctly made in principle – Observations on amounts determined and on legitimate expectation.
[1] The appellant, known simply as “Community” is a trade union. It came into being in 2004 as an amalgamation of small trade unions, representing workers in a disparate variety of industries. It is divided into eight regions, sub-divided into branches, each of which has a branch secretary who is responsible, with other members of the branch committee, for the running of the branch. Although all of the officers of each branch are volunteers, I understand it is the secretaries alone who receive payment, in the form of what Community terms an honorarium (the label applied is of no significance in itself). The honorarium, paid quarterly, is calculated as a percentage of the branch members' contributions, and usually amounts to a relatively modest annual sum. It is common ground that the honoraria represent in part the reimbursement of expenses and in part a “profit” element. It is also common ground that the honoraria are taxable (with relief for the expenses element). The question which arises in this appeal is whether they fall within the scope of the PAYE provisions, that is the Income Tax (PAYE) Regulations 2003 (“the Regulations”), or are to be dealt with in a different manner.
[2] The respondents, HMRC, take the view that they must be treated in accordance with the Regulations, and have issued four determinations, made pursuant to reg 80, and relating to the years 2010–11 to 2013–14 inclusive, by which they seek to recover tax of about £108,000 for which they say Community should have accounted. The essence of HMRC's reasoning is that the branch secretaries are office holders within the meaning of s 5 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) and that, by operation of the legislative provisions with which I deal in more detail below, the honoraria are to be treated as employment income, thus falling within the scope of the Regulations.
[3] Community has appealed against each of the determinations. Its primary case is that the branch secretaries are not office holders. In addition, it says, even if the respondents are right in principle, the amounts assessed are excessive. For the reasons I explain below I do not need to deal with this argument, but I shall nevertheless make some comments about it later. Third, Community argues that what HMRC have done, or have purported to do, offends its legitimate expectations, though it recognises that there are difficulties in its path in raising such an argument in this tribunal. Again, I do not need to deal with the argument but will make some observations later.
[4] The relevant facts, including the brief outline set out above, are largely undisputed but I had the written and oral evidence of four witnesses: Mr Sailesh Mehta, who is a partner in the firm of chartered accountants representing Community and who undertakes its annual audit; Mr Roy Rickhuss, Community's general secretary; Mr Peter Rees and Mr David Preedy, both branch secretaries; and Mrs Sarah Wold, Community's director of finance. I accept their evidence, which was not materially challenged in cross-examination, and what I say below of their evidence may be taken as my findings of fact.
[5] Community was represented before me by Mr Keith Gordon of counsel and HMRC by Mr Tony Burke, a presenting officer.
[6] Mr Rickhuss described Community's structure, and in particular its division into regions each with several branches, run by a branch secretary with support from a committee. The branch secretaries were and are elected by the members of each branch for a term of two years, but as it is difficult to persuade candidates to stand many branch secretaries stand unopposed and serve several two-year terms. For the same reason a significant number of posts are unfilled at any given time. In these cases, the branch is run by the regional office until a new secretary can be found. An honorarium is paid only to elected branch secretaries, and not to others who temporarily perform their functions.
[7] Mr Rees has been a member of Community, or its predecessor unions, since April 1979, when he began working at what is still his place of employment in South Wales. He became a branch committee member in 1988 and was elected the branch secretary in 1999, a position he still holds. His duties include the representation of 141 Community members, all working on the same site, and he participates in negotiations on pay and working conditions as a member of a joint committee of all the trade unions who have members on the site. Because he is a branch secretary he also serves on various other regional and national committees and, he explained, although he is allowed by his employer to devote part of his working time to union business, he also spends a good deal of what would otherwise be his spare time on Community's or wider trade union affairs. His position does not bring with it any power to bind Community in any way – that can be done only at national level. He can also not make branch-level decisions alone; that may be done only by the committee. In essence, the branch secretary is the conduit between the individual members and the branch committee, and between the branch committee and the regional and national committees. The honorarium is intended to include reimbursement of routine expenses, such as stamps and telephone calls and travelling within the branch's area, but other expenses, such as for travel further afield or hotel bills, are claimed separately; Community has a published scale of claimable expenses. Mr Rees added that he enters the amount of his honorarium on his annual tax return, and his PAYE code is adjusted in such a manner as to ensure that the honorarium is subject to tax. Mr Preedy's evidence was in all material respects the same as Mr Rees's, and I intend him no disrespect by not setting it out. Both Mr Rees and Mr Preedy produced copies of correspondence between themselves and their respective local tax offices showing the process of adjusting their tax codes, including in the years which are the subject of the disputed determinations.
[8] Mrs Wold has been working for Community or a predecessor body since 1997. When she joined, there was an understanding with what was then the Inland Revenue about the handling of the honoraria. A few were sufficiently large to attract national insurance contributions, for which special arrangements were put in place, but as far as income tax was concerned there was an agreement that the honoraria should be paid gross and that each branch secretary should himself declare the payment to the Inland Revenue each year. Community was required to, and did, provide an annual list of the branch secretaries and the payments made to them. In 1997, as is common ground, one of Community's predecessor unions and the Inland Revenue agreed on a simple formula for calculating the expenses element on a “rough and ready” basis, in order to avoid a detailed enquiry into relatively modest amounts. It is also common ground that arrangements such as Mrs Wold described had been in place since at least 1981, and I saw documentary evidence of the practice over several years. Occasionally Mrs Wold received enquiries from local offices of the Inland Revenue or, later, HMRC about the amounts paid, but there was no suggestion that the branch secretaries should be treated as if they were employees or that their honoraria should be processed through the union's PAYE scheme (which caters for about 70 employees) until 2012, when HMRC raised the subject, without prior warning, at a meeting. Mrs Wold also explained the practical difficulties which Community would face if it was forced to process the honoraria through its PAYE system, but I do not think those difficulties, which I accept would be real, can affect the outcome of this appeal.
[9] The main topic of Mr Mehta's evidence was the history of the dispute between Community and HMRC. He too knew that until 2012 there was an established understanding between Community and HMRC that the honoraria need not be accounted for by means of Community's PAYE system, but that it could instead pay them without deduction of tax, and supply to HMRC, at each year end, a list such as Mrs Wold had described. He was unaware of any change of view on HMRC's part before the meeting mentioned by Mrs Wold, a meeting which, because it was assumed to be of a routine nature, Mr Mehta did not attend. He then described somewhat hostile exchanges, in correspondence and at meetings, as well as the issue by HMRC of some information notices which Community had challenged. HMRC's attitude, throughout, he said, had been uncompromising: they were insistent that the branch secretaries were office holders and that their remuneration should have been processed through the PAYE system, even though it had already been taxed by other means, a fact which the determinations did not reflect.
[10] It is common ground that the branch secretaries are not Community's employees, and that the validity of the determinations stands or falls by...
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