Green
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 June 2019 |
| Date | 17 June 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 390 (TC)
Judge Anne Fairpo
Mr Buchsbaum appeared for the appellant
Ms Poots, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Whether earnings of a diver within ITTOIA 2005, s. 15 can be regarded as earnings of a partnership – No – Whether the diver was self-employed – No – Appeal dismissed.
The First-tier Tribunal found that the appellant, a diver, was an employee, and that income from his contract was not income of a partnership but, instead, income of the appellant.
This appeal was heard jointly with another appeal, Puttnam [2019] TC 07204. As the facts of the appeals differed slightly, the decisions were given separately.
The appellant was a mixed gas diver. The appellant treated income from his engagement by Subsea 7 Singapore Pte Ltd (Subsea 7) as trading income of a partnership with his spouse. He reported 50% of that income on his tax return as his share of the profits of the partnership.
The appellant argued that s. 15, ITTOIA 2005 operated to reclassify the employment of a relevant diver as a trade and that the effect of s. 15 should be interpreted widely. In particular it was argued that s. 15 should be interpreted as meaning that it was the owners of that trade who were subject to tax on the profits from the trade rather than the diver specifically.
HMRC contended that all income from Subsea 7 should have been treated as income of the appellant. It was clear from a reading of s. 15 that the trade referred to was a trade of the employee only. The language did not support an extension of the meaning to encompass a trade by another person.
The FTT found that s. 15 did not deem the employment generally to be a trade for all purposes, and so could not be interpreted as meaning the employment should be treated as a trade which was separate to the diver and was capable of being owned and carried on by another person, or by persons in common under partnership law. Thus, the only person who could be regarded as “carrying on a trade” within the meaning of s. 15 was the individual “performing the duties of the employment”.
It was the FTT's view that the Court of Appeal decision in Fowler [2018] BTC 41 did not suggest that s. 15 should be interpreted as meaning that an actual trade, which may be carried on by persons other than the diver, was created. On the contrary, the decision made it clear that the effect of s. 15 was to deem a trade to be carried on by the diver only.
The appellant argued that, if s. 15, ITTOIA 2205 could not be interpreted to mean that the income of his employment should be treated as income of a partnership, the relationship between the appellant and Subsea 7 was in fact one of self-employment.
He described his work as a mixed gas saturation deep sea diving, which meant that whilst working he lived in a chamber on board ship which was then to bring him up from the dive. He said that, at the same time as working for Subsea 7, he was asking others for work as he was not committed to Subsea 7. He explained that the relationship with Subsea 7 followed the pattern of working ad hoc. Subsea 7 would email a number of divers to say that spaces were available for a project staring in the next week and asked which divers were available. Even once accepted, assignments could be delayed or cancelled.
The FTT found that although there was no overarching mutuality of obligation between assignments, there was mutuality of obligation within each assignment. Subsea 7 confirmed that divers would be paid for an assignment even if no work could be undertaken on a particular day as a result, for example, of bad weather conditions. Similarly, once on board ship, the appellant was required to perform duties assigned to him by Subsea 7.
The appellant argued there was no contract for personal service as his spouse provided back office services and so the services were not exclusively provided by him, and the contract was for team services.
The FTT disagreed. The day worker agreement was specifically between Subsea 7 and the appellant. There was no scope for interpreting the contract as being for “team services”. It was also clear, on the evidence provided, that Subsea 7 had control over the work undertaken by the appellant. The relationship between the appellant and Subsea 7 was therefore one of employment and not a trade capable of being carried on in partnership.
The appellant also stated that his travel expenses would only be paid if he had boarded the ship before cancellation. However, the evidence from his contract and payslips was that a standard travel allowance was paid by Subsea 7 for each day worked rather than that travel expenses were specifically reimbursed. The appellant therefore had very limited financial risk.
The FTT held that there was a mutuality of obligation in each of the assignments taken on by the appellant, that Subsea 7 had substantial control over the appellant's work, and that the other factors raised were not inconsistent with a contract of service.
It also dismissed the appellant's argument that the case should be equivalent to Newstead v Frost [1980] 53 TC 525. The appellant's contract with Subsea 7 was entered into three years before the partnership was created, and was not novated to the partnership, and so the contract could not have been entered into by the partnership in order to provide the services of the diver.
Dismissing the appeal, the FTT found that the appellant was an employee of Subsea 7, that the income from the contract was not income of a partnership but, instead was income of the appellant.
This appeal and the appeal of Puttnam [2019] TC 07204 were heard together but as the facts varied slightly the decisions were given separately. However, the FTT came to the same conclusions in both decisions. The appellants were employees of Subsea 7 and their earnings as a diver within s. 15 ITTOIA 2005 could not be regarded as the earnings of a partnership.
[1] This is an appeal against a closure notice for the tax year 2012/13 issued on 27 February 2017 in the amount of £15,060.29.
[2] The appeal was heard jointly with the appeal of another individual, Mr Puttnam. As some of the facts of the appeals are slightly different, this decision deals only with the appellant's appeal. A separate decision was given in relation to Mr Puttnam.
[3] The appellant is a mixed gas diver. In the relevant tax year the appellant treated the income from his engagement by Subsea 7 (Singapore) Pte Limited (Subsea 7) as trading income of a partnership with his spouse. The appellant reported 50% of that income on his tax return as his share of the profits of the partnership.
[4] HMRC opened enquiries into the return and issued closure notices giving effect to HMRC's conclusion that all of the income from Subsea 7 should be treated as income of the appellant.
[5] It was agreed between the parties that, if the appellant is an employee, his income falls within the scope of s15 ITTOIA 2005.
[6] The appellant noted, in opening, that HMRC had also enquired into another tax year but had withdrawn the assessment before that had proceeded to a hearing. It was submitted that HMRC had therefore accepted that for those years, the income should be regarded as income of a partnership. HMRC argued that the assessments had been withdrawn on a without prejudice basis and the withdrawals were not relevant to this matter.
[7] Each case has to be considered on its own facts and, as the other assessments were withdrawn without prejudice, I do not consider that any inference can be drawn of relevance to this matter from those withdrawals.
[8] The appellant also suggested in the hearing that HMRC should not be allowed to raise arguments that were not included in correspondence during the enquiry. HMRC noted that the arguments had been included in the statement of case some months earlier without objection. I do not consider that HMRC could be precluded from raising arguments that were set out in their statement of case, simply on the basis that the arguments had not been set out in earlier correspondence.
[9] The appellant argued s15 ITTOIA operates to reclassify the employment of a relevant diver as a trade and that the effect of s15 should be interpreted widely. In particular it was submitted that s15 should be interpreted as meaning that it is the owners of that trade who are subject to tax on the profits from the trade rather than the diver specifically.
[10] The appellant argued that there are various differences between taxation of employment and taxation of a trade. It was submitted that a key difference is that in employment it is the person who performs the duties who is taxed whereas in the context of a trade, it is the owner or owners of the trade (including inactive owners) who are taxed on the income of the trade, regardless of who performed the duties which gave rise to that trade income. The appellant further argued that the decision as to who is the owner of a trade is one which made by the owners of that trade, as supported by the fact that partners can and do determine their profit sharing ratios.
[11] In this case, it was argued that the appellant and his spouse had formed a partnership on 6 April 2009 and that it was this partnership which owned and carried on the diving trade that was created by s15. Accordingly, the appellant argued that it was this partnership that was subject to tax on the income derived from the duties performed by the appellant.
[12] It was submitted that, if Parliament had not intended this broad interpretation to apply to s15 and to limit the statute so that the trade could only be a trade of the employee and not of a partnership, clear words would be required to limit the application...
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Puttnam
...was not income of a partnership but, instead, income of the appellant. Summary This appeal was heard jointly with another appeal, Green [2019] TC 07205. As the facts of the appeals differed slightly, the decisions were given separately. The appellant was a mixed gas diver. The appellant tre......