Cooke v Blacklaws
| Jurisdiction | England & Wales |
| Judgment Date | 15 October 1984 |
| Date | 15 October 1984 |
| Court | Chancery Division |
Chancery Division.
Mr. R. Carnwath (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. G. Aaronson Q.C. (instructed by Messrs. E.P. Rugg & Co.) for the taxpayer.
Before: Peter Gibson J.
Income tax - Remuneration of dentist - Dentist not domiciled in U.K. - Contract with non-resident corporation - Whether profits or gains from a profession assessable under schedule DSch. D, Case II- Whether emoluments under contract of employment assessable underIncome and Corporation Taxes Act 1970 schedule ESch. E- Whether foreign emoluments - Finance Act 1974 schedule 2 subsec-or-para 3Finance Act 1974, Sch. 2, para. 3.
This was an appeal by the Crown from a decision of the Special Commissioners, who allowed the taxpayer's appeal against an assessment to income tax under schedule DCase II of Sch. D on the ground that the remuneration was paid under a contract of employment and accordingly was assessable to tax under Income and Corporation Taxes Act 1970 schedule ESch. E.
The taxpayer was a dentist, domiciled in New Zealand, who worked for a dental practice in the United Kingdom and was registered in the Dental List, providing general dental services for the National Health Service. At first he operated as a self-employed practitioner, but later, in order to persuade him to remain in the UK, a non-resident company was set up to employ the taxpayer and other New Zealand dentists, to secure the favourable tax treatment available for "foreign emoluments" under the Finance Act 1974 schedule 2 subsec-or-para 3Finance Act 1974, Sch. 2 para. 3 (removed by the Finance Act 1984). The company paid the taxpayer's salary, gave directions as to the dental work he was to carry out, guaranteed him a minimum annual salary to which he was entitled for three months if he were unable to work, and agreed to pay the costs of transporting the taxpayer and his family back to New Zealand at the end of the employment. The contract could be terminated by three months' notice on either side. The taxpayer continued to provide services for the National Health Service, and the dental practice paid the company for providing the taxpayer's services.
The taxpayer was assessed to income tax in respect of his remuneration from the company under schedule DCase II of Sch. D as being profits or gains arising or accruing from a profession. The taxpayer's appeal to the Special Commissioners on the ground that the remuneration constituted emoluments under a contract of employment and as such was taxable under Income and Corporation Taxes Act 1970 schedule ESch. E was allowed. The Crown appealed.
It was argued for the Crown that the only true and reasonable conclusion to be reached on the facts found by the Special Commissioners was that no contract of employment existed between the taxpayer and the company, but rather a contract which left the taxpayer practising on his own account as previously. It was further pointed out that in law a company could not carry on the business of dentistry through the taxpayer. Only as a principal could the taxpayer provide treatment as a dentist on the Dental List by reason of section 38sec. 38 of the Dentists Act 1957.
For the taxpayer it was submitted that the contract which existed between the taxpayer and the company was a contract of employment. Whether or not the contract was illegal was immaterial to the question of liability to tax.
Held, dismissing the Crown's appeal:
1. The Special Commissioners were entitled on the evidence to reach the conclusion that a contract of employment existed between the taxpayer and the company.
2. The illegality point was a factor which the Special Commissioners could properly have taken into account. However, the point was not taken before them, and this was not a case which ought to be remitted to them to reconsider their conclusion.
1. On 6 and 7 November 1980 the Commissioners for the special purposes of the Income Tax Acts heard the appeal of Douglas David Blacklaws against an assessment to income tax under Sch. D, Case II for the year of assessment 1978-79 in the sum of £18,000.
2. At the conclusion of the hearing we reserved our decision and gave it in writing on 19 May 1981. A copy of that written decision (hereinafter called "the Decision") is annexed hereto and forms part of this case.
3. The questions which we had to determine are summarised in para. 3 of the Decision.
4. The documents which were placed before us at the hearing are listed in the Appendix to the Decision and their evidential status is there specified. Copies of those documents are available for inspection by the court if required.
5. Certain of the facts were common ground between the parties and those agreed facts are set out in para. 2 of the Decision. Our findings on the disputed issues of fact are set out in para. 14 to 24 of the Decision.
6. The contentions of the parties are set out in para. 6 to 8 of the Decision.
7. Paragraphs 9 to 13 of the Decision contain our decision on questions of law and para. 25 our conclusion that the appeal be allowed and the assessment discharged.
8. The appellant inspector of taxes immediately after the determination of the appeal declared to us his dissatisfaction therewith as being erroneous in point of law and on 15 June 1981 required us to state a case for the opinion of the High Court pursuant to Taxes Management Act 1970 section 56sec. 56 of the Taxes Management Act 1970 which case we have stated and do sign accordingly.
10. The question for the opinion of the court is whether our decision is correct in law.
1. This is an appeal by Mr. Douglas David Blacklaws ("Mr. Blacklaws") against an assessment to income tax made under schedule DSch. D, Case II for the year of assessment 1978/79. The case for Mr. Blacklaws was presented by Mr. B.R. Oury of Messrs. Oury & Co., Accountants; the Inland Revenue was represented by Mr. D. MacDonagh of the Office of the Solicitor of Inland Revenue.
2. Some, but not all, of the facts were common ground between the parties to this appeal. Our findings on the disputed issues of fact are contained in para. 14 to 24 below. The agreed facts are as follows:
(2) [Mr. Blacklaws], a qualified Dentist and a New Zealander by birth, came to the United Kingdom in early January 1975 and on 6 January was engaged to work as a dentist (as he has since continued to work) in the dental practice of first, (until March 1979) P.J. Chicken and R.J. Ward in Partnership (hereinafter referred to as C. & W.) and, thereafter (following the death of Mr. Ward) of P.J. Chicken sole (hereinafter referred to as P.J.C.), both practices which operated from premises at 20A, High Street, High Wycombe, Bucks. [Mr. Blacklaws] applied in standard form for inclusion in the Dental List maintained by the Family Practitioner Committee of the National Health Service ("NHS") through the Area Office at Aylesbury, Bucks., and undertook to provide general dental services under the National Health Services Acts. [Document A is a specimen form of application for inclusion in the Dental List.] [Mr. Blacklaws] was duly registered in that List by the Family Practitioner Committee with the personal number 502/722146. [Mr. Blacklaws] has throughout provided general dental services for the NHS and he signed and submitted the appropriate returns for work done ["dental estimate forms"] to the appropriate Dental Estimates Board at Eastbourne. In accordance with normal practice however, [Mr. Blacklaws] had, on joining C. & W. assigned his NHS fee to the partnership as per the standard form [of which Document B is a specimen] so that the fees which would otherwise have been payable to [Mr. Blacklaws] were paid direct instead, until March 1979, to the partnership and thereafter to P.J.C. as sole principal.
(3) In June 1976, the accountants then acting for [Mr. Blacklaws], R.C. Barrett & Co., submitted schedule DSchedule Daccounts for the year ended 5 January 1976 and assessments under schedule DCase II of Schedule D based on those accounts for 1974/75 to 1976/77 were agreed. Open appeals for 1974/75 and 1975/76 were determined and 1976/77 later assessed in the agreed figures.
(4) In the absence of accounts, an estimated Schedule D assessment for 1977/78 was made on 14 November 1977 and an appeal was submitted on [Mr. Blacklaws'] behalf by R.C. Barrett & Co. on 17 November on the grounds that the assessment was estimated and not in accordance with the accounts to be supplied. Again, in the absence of accounts an estimated Schedule D assessment for 1978/79 was made on 16 October 1978 and about that time, [Mr. Blacklaws] appointed Messrs. Oury & Co. to act in the place of R.C. Barrett & Co. Messrs. Oury & Co. wrote on 30 October 1978 enclosing an appeal dated 23 October 1978 against the assessment for 1978/79 and questioning the validity of the assessments for previous years in respect of periods after 19 March 1975.
(5) For the period at least until 6 April 1979 [Mr. Blacklaws] had and retained a New Zealand domicile.
(6) Dental Associates Incorporated ("DAI") is a company incorporated in Panama in 1975 having its registered office at P.O. Box 8320, 16th Floor, Comosa Building, Samuel Lewis Avenue, Panama City, Republic of Panama (formerly at P.O. Box 5246, Banco do Brasil Building, Elvira Mendez Street, Panama City, Republic of Panama) with its administration office firstly at P.O. Box 183, 30 Rue du Nant, 1211 Geneva 6, Switzerland and later at P.O. Box 408, Place du Molard, 1211 Geneva 3, Switzerland.
(7) It is admitted that DAI is not resident in the United Kingdom for taxation purposes.
(8) [Mr. Blacklaws] signed a "Contract of Employment" between himself and DAI on 24 April 1979 and this document was sent to H.M. Inspector of Taxes, High Wycombe on the same date. [Document C is a copy of that document.]
(9) [Mr. Blacklaws] originally came to the United Kingdom...
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