EMI Group Electronics Ltd v Coldicott (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Chadwick LJ,MR JUSTICE RATTEE,LORD JUSTICE SIMON BROWN |
| Judgment Date | 16 July 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0716-16 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 July 1999 |
| Docket Number | CHANF 98/0512/3 |
[1999] EWCA Civ J0716-16
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(MR JUSTICE NEUBERGER)
Royal Courts of Justice
Strand
London WC2
Lord Justice Simon Brown
Lord Justice Chadwick
Mr Justice Rattee
CHANF 98/0512/3
MR A THORNHILL QC with MR C McDONNELL (Instructed by Messrs Rowe & Maw, London EC4V) appeared on behalf of the Appellant
MR L HENDERSON QC with MR T BRENNAN (Instructed by Solicitor of Inland Revenue) appeared on behalf of the Respondent
Friday, 16 July 1999
This is an appeal from the order made on 22 October 1997 by Mr Justice Neuberger on an appeal by EMI Group Electronics Limited, from the decision of the Commissioners for the special purposes of the Income Tax Acts. The appeal raises, once again, the question whether payments made to employees on the occasion of the determination of their employment are taxable under Case I of Schedule E as emoluments from that employment.
The underlying facts are set out in an agreed statement which was before the special commissioners. They may be summarised as follows:
1.The relevant employees, Mr A G D Soames and Mr J D Hussey, were employed by the taxpayer (then known as Thorn EMI Electronics Ltd) at senior management level under contracts of employment which contained the following provision for termination:
NOTICE OF TERMINATION
The senior manager is required to give the Company three months' notice in writing of the intention to terminate employment. The Company will give its senior managers six months' notice in writing of its intention to terminate employment, except during the first six months of service, when this will be reduced to three months' notice.
The Company reserves the right to make payment of the equivalent of salary in lieu of notice and to terminate employment without notice or payment in lieu for gross misconduct.
2.Mr Soames was given notice of termination of his employment, on grounds of redundancy, by letter dated 26 March 1987. At that date his salary was £25,000 per annum. His employment was determined with effect from the following day, 27 March 1987. The letter of termination informed him that:
Under the terms of the Company's severance payment scheme, you will receive the following payment:
Total redundancy payment
£12,500
Including Statutory Redundancy Payment
Payment in lieu of Notice
£12,500
TOTAL
£25,000
3.Mr Hussey was given notice of termination of his employment, also on grounds of redundancy, by letter dated 19 November 1992. At that date his salary was £29,000 per annum. His employment was determined with effect from the end of that month, 30 November 1992. The letter of termination informed him that:
Your salary will be paid up to and including 30 November 1992, but you are not required to report to work after today…
You will receive a cheque for £16,013.93. This covers both redundancy pay and pay in lieu of notice
The payment of £16,013.93 was made up of redundancy pay (£5,555.60—the equivalent of ten weeks salary) which included the statutory redundancy payment; and payment in lieu of notice (£10,458.33). The payment in lieu of notice was calculated as follows:
Salary in lieu
| 6 months | £14,500.00 |
| less one week (to 30 November 1992) | £ 555.56 |
| £13,944.44 | |
| less notional tax at 25% | £ 3,486.11 |
| £10,458.33 |
4. The deduction of notional tax, in calculating the amount of the payment in lieu, reflected a change in the employer's practice which had been introduced in October 1991. Under the new practice, where an employee had been given notice to determine his employment with effect from a date which was before the end of the six month notice period, the payment in lieu was calculated by deducting from the employee's basic salary for the remainder of the notice period an amount equal to the amount of tax which would have been deducted, under PAYE, if he had continued in employment until the end of the notice period. The effect of the change was that, although Mr Soames (whose employment was terminated before October 1991) had received a payment equal to the amount of his salary (for the period in lieu of notice) without deduction of tax, Mr Hussey (whose employment was terminated after October 1991) received a payment equal only to the amount of his salary (for the relevant period) after deduction of tax. The change in practice does not affect the question whether or not the employer is accountable for tax in respect of the payment made to the employee. It may affect the amount of tax for which the employer is accountable (if at all); but that is not a question for decision on this appeal.
5. Determinations were made against the appellant, as employer, in respect of the tax year 1986/87 under regulation 29 of the Income Tax (Employments) Regulations 1973 and in respect of the tax year 1992/93 under regulation 49 of the Income Tax (Employments) Regulations 1993. Those regulations (the later of which replaces the earlier in respect of the years to which it applies)—made under what is now section 203(2) of the Income and Corporation Taxes Act 1988—enable the revenue to recover from the employer tax which (as it appears to the inspector) should, under section 203(1) of that Act, have been deducted from an employee's emoluments and which has not been paid to the collector.
The employer appealed to the special commissioners against those determinations. There was no dispute that, if the payments in lieu were taxable under Schedule E, as emoluments within Case I, the determinations were properly made. Nor was there any dispute that the payments were capable of being "emoluments" within the meaning given to that expression by section 131(1) of the 1988 Act: that is to say "all salaries, fees, wages, perquisites and profits whatsoever". The only issue was whether the payments were properly to be regarded as emoluments fromtheemployment in the context of section 19(1) of the Act:
19(1) The Schedule referred to as Schedule E is as follows—
SCHEDULE E
1. Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom which fall under any one or more of the following Cases—
Case I:any emoluments for any year of assessment in which the person holding the office or employment is resident and ordinarily resident in the United Kingdom…
It is common ground that, if the payments were not chargeable to tax under Case I of Schedule E, they would fall within section 148(2) of the 1988 Act ("Payments on retirement or removal from office or employment")—formerly section 187(2) of the Income and Corporation Taxes Act 1970. But tax is not charged under section 148(1) in respect of payments not exceeding £30,000 (£25,000 in the tax year 1986/87)—see section 188(4) of the 1988 Act and section 188(3) of the 1970 Act. Accordingly, notwithstanding the provisions of section 148, the payments to Mr Soames and to Mr Hussey—being less than the exempt sum—are not chargeable to tax unless they do fall within Case I. It is the availability or non-availability of the exemption which gives practical importance to the question in dispute.
The special commissioners, in a decision given on 10 September 1996 (reported at [1996] STC (SCD) 455), held in principle that the payments to Mr Soames and to Mr Hussey were emoluments chargeable to tax under Case I of Schedule E. They dismissed the appeals against the determinations made by the inspector. The employer appealed to the High Court, under section 56A of the Taxes Management Act 1970. That appeal was heard by Mr Justice Neuberger, who gave judgment on 22 October 1997 (reported at [1997] STC 1372). He dismissed the appeal and affirmed the decision in principle of the special commissioners. It is from that order that the employer appeals to this court.
The question whether a payment to an employee is properly to be regarded as an emolument from his employment, for the purposes of what is now section 19(1) of the 1988 Act, was (I think) first considered by the House of Lords some 70 years ago, in Hunter v Dewhurst (1932) 16 TC 605. Since then the question has received consideration by the House of Lords on at least eight occasions—in Cameron v Prendergast [1940] AC 549, Tilley v Wales [1943] AC 386, Hochstrasser v Mayes [1960] AC 376, Laidler v Perry [1966] AC 16, Brumby v Milner [1976] 1 WLR 1096, Bray v Best [1989] 1 WLR 167, Shilton v Wilmhurst [1991] 1 AC 684 and, most recently, in Mairs v Haughey [1994] 1 AC 303. In the last of those appeals Lord Woolf observed, at [1994] 1 AC 303, 320E-F, in a passage cited by the judge in the present case [1997] STC 1372, 1384c-e, that:
…this is an area in which there is an abundance of authority. It is not always easy to reconcile these authorities since as is to be expected they are frequently concerned with situations close to the borderline between payments which fall within and payments that fall without the statutory provision. It is possible to have almost an infinite variety of situations which, although they have common characteristics, as a matter of fact and degree fall on one side of the border or the other. In each case ultimately it is a matter of applying the statutory language to the facts.
There were, however, two passages in the earlier decisions which Lord Woolf identified as providing some general assistance. In attempting the task of applying the statutory language to the facts in the present case, it is helpful to have those passages in mind. The first is in the speech of Lord Radcliffe in ...
To continue reading
Request your trial
-
Goldberg v HM Revenue and Customs
...... Goldberg), appeals against an amendment raised under Taxes Management Act 1970 section 28A section 28Bsections 28A and ... employment but under a breach of contract by Intouch Group PLC (his employers) for failing to give him an appropriate ... were referred to the following cases:EMI Group Electronics Ltd v Coldicott (HMIT)TAX[1997] BTC 532SCA Packaging Ltd v ... of 11 March 2008, addressed to Mr Arnell ( the inspector in charge of the case) he says: At the meeting between ......
- EMI Group Electronics Ltd v Coldicott (Inspector of Taxes)
-
SCA Packaging Ltd v HM Customs & Excise
...... E under section 19 of the Income and Corporation Taxes Act 1988 (“Section 19”). . 3 The ......
-
The Commissioners for HM Revenue and Customs v Tottenham Hotspur Limited
...This is because the payment represents the security of employment which the employee required in order to enter into the employment contract (EMI Group Electronics Ltd v. Coldicott [1999] STC 803 The existence of substantial reasons unconnected with the employee’s employment for making or r......
-
Taxation of Termination Payments
...that are liable to tax under section 401 of ITEPA are generally not liable to NIC even if they exceed £30,000. Footnotes 32 TC 118 [1999] STC 803,811 [2002] IRLR 747 [2001] IRLR 160 [2009] UKFTT 140 (TC) This publication is intended merely to highlight issues and not to be comprehensive nor......