Hamblett v Godfrey
| Jurisdiction | England & Wales |
| Judgment Date | 03 March 1986 |
| Date | 03 March 1986 |
| Court | Chancery Division |
Chancery Division.
Mr. R.K. Mathew (instructed by Messrs. Lane & Co.) for the taxpayer.
Mr. A.G. Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Knox J.
The following cases were referred to in the judgment:
Brumby (H.M.I.T.) v. Milner TAX(1976) 51 T.C. 583
Council of Civil Service Unions v. Minister for the Civil ServiceELR[1985] A.C. 374
Hochstrasser v. Mayes ELR[1960] A.C. 376
Laidler v. Perry TAX(1965) 42 T.C. 351
Income tax - Schedule E - Emoluments - Employment - Changes in conditions of service - Ex gratia payment by employer in recognition of loss of rights as employee - Whether payment was emolument from employment - Whether payment was benefit of higher-paid employee -Income and Corporation Taxes Act 1970 section 181 subsec-or-para (1) section 183 subsec-or-para (1)Income and Corporation Taxes Act 1970. sec. 181(1), 183(1); Finance Act 1976 section 61 subsec-or-para (1)Finance Act 1976, sec. 61(1).
This was an appeal by the taxpayer against a decision of the Special Commissioners on 1 May 1985 upholding an income tax assessment for 1983-84 on the taxpayer under Sch. E in a sum including £1,000 paid to her in that year as a member of the Government Communications Headquarters (GCHQ) staff.
Miss Hamblett (H), was a member of staff at GCHQ and until December 1983, her rights included the right to join a trade union and to apply to an industrial tribunal in respect of rights conferred upon employees under the Employment Protection legislation. She had not belonged to a trade union since 1972 but she was permitted and encouraged to do so.
In December 1983 the Prime Minister gave a direction under Art. 4 of the Civil Service Order in Council of 1982 that conditions of service at GCHQ should for the future exclude membership of a trade union other than to a departmental staff association as approved by the Director. This was a unilateral exercise of Crown prerogative powers and was effected without prior consultation. In addition, the Secretary of State for Foreign and Commonwealth affairs issued certificates under section 121 subsec-or-para (4)sec. 121(4) of the Employment Protection Act 1975 and section 138 subsec-or-para (4)sec. 138(4) of the Employment Protection (Consolidation) Act 1978 which had the effect of removing the rights of GCHQ staff under those Acts.
After those steps the staff, including H, had lost their rights to belong to trade unions or to resort to industrial tribunals and other forms of statutory protection. On 25 January 1984, each member of staff received a covering letter from the Director, a formal notice of the statutory changes in conditions of service and an options form. The formal notice stated that a special ex gratia payment of £1,000 would be made to employees who signed the option "in recognition of the withdrawal from GCHQ staff of the statutory rights…". H signed the form undertaking not to join a trade union and received her £1,000 in her monthly pay cheque for March 1984. It was described as a special payment. On the assumption that the payment was subject to tax it brought her total taxable pay to date for the financial year to £9,118.17.
H appealed to the Special Commissioners against the tax treatment of the payment. The Crown contended that the £1,000 was taxable underIncome and Corporation Taxes Act 1970 section 181 subsec-or-para (1)sec. 181(1) of the Income and Corporation Taxes Act 1970 as an emolument from her employment. Alternatively, the Crown argued that a charge arose under Finance Act 1976 section 61 subsec-or-para (1)sec. 61(1) of the Finance Act 1976.
The Special Commissioners found in favour of the taxpayer on the question of whether the payment was an emolument but against her on the claim under Income and Corporation Taxes Act 1970 section 61sec. 61 from which she appealed to the High Court. The Crown served notice of its intention to contend that the £1,000 was an emolument so that that was the first question for the court. It was agreed that if the payment was an emolument from her employment it was chargeable to income tax under Sch. E, Case I.
Held, dismissing the taxpayer's appeal:
1. The Special Commissioners' conclusion that an emolument was a payment made by way of remuneration in return for performing duties of an office or employment and for no other purpose was unacceptable. It was inconsistent with authority and the expanded definition of emoluments in Income and Corporation Taxes Act 1970 section 183 subsec-or-para (1)sec. 183(1) of the 1970 Act indicated something wider than remuneration. Salaries, fees and wages were all remuneration but "perquisites and profits whatsoever" went much wider. Further, the words in Income and Corporation Taxes Act 1970 section 181sec. 181 "emoluments therefrom" indicated that employment had to be no more than the "causa sine qua non" of the payment for the payment to be treated as arising from such employment.
2. The right to join a trade union was a right ultimately bound up with and necessarily part and parcel of and incidental to a particular employment. The rights enjoyed under the Employment Protection legislation were also incidental to the relationship between employer and employee as controlled by Statute. Such rights were not to be equated to a general personal liberty such as the freedom to write to newspapers. They were bound up with the relationship of employer and employee.
3. The offer of the payment was made to all GCHQ staff and was not personal to H. Further, the payment was only received by employees like H who chose to continue in employment with GCHQ with the loss of rights resulting from the exercise of the Crown's prerogative powers. The payments were made to those employees in recognition of their loss of rights. There was, therefore, more required than just having the status of employee at the time of the payment, i.e. an election to stay on before any payment was received.
4. Weighing the relevant factors, the payment was made in respect of rights which were part and parcel of the relationship of employer and employee and was received by H from her employment. Consequently, it was an emolument and assessable to income tax and the Crown's claim underFinance Act 1976 section 61sec. 61 did not arise. (Hochstrasser v. Mayes [1960] A.C. 376 distinguished).
1. On 28 and 29 March 1985 the Commissioners for the special purposes of the Income Tax Acts heard an appeal by June Winifred Hamblett (hereinafter called "Miss Hamblett") against an assessment to income tax under Sch. E for 1983/84 in the sum of £9,118.
2. Shortly stated the questions for our decision were:
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(i) whether the sum of £1,000 paid to Miss Hamblett by her employer in 1983/84 was an emolument from her employment charged to tax under Sch. E by Income and Corporation Taxes Act 1970 section 181sec. 181 of the Income and Corporation Taxes Act 1970: and, if not,
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(ii) whether that sum was to be treated as an emolument chargeable to tax under Sch. E by virtue of Finance Act 1976 section 61sec. 61 of the Finance Act 1976.
3. [Paragraph 3 set out the documentary evidence proved or admitted before the Commissioners.]
4. At the close of the hearing we reserved our decision and gave it in writing on 1 May 1985. A copy of that decision, which sets out the facts, the contentions of the parties and the reasons for our conclusions, is annexed to and forms part of this case.
5. Reference was made in argument to Henley v. Murray (1950) 31 T.C. 351 in addition to the cases mentioned in our decision.
6. The appellant immediately after the determination of the appeal declared to us her dissatisfaction therewith as being erroneous in point of law and on 22 May 1985 required us to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56 which case we have stated and do sign accordingly.
7. The question of law for the opinion of the court is whether we erred in law in holding:
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(a) that the payment of £1,000 represented a benefit provided for the appellant by reason of her employment, for the purposes ofFinance Act 1976 section 61sec. 61, Finance Act 1976; and
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(b) that no part of the cost of providing that benefit was made good by the appellant to those providing the benefit within the meaning of section 63 subsec-or-para (1)sec. 63(1) of that Act.
Miss Hamblett appeals against a Sch. E assessment for 1983/84 in the sum of £9,118. That sum includes a payment of £1,000 which she received in that year as a member of the staff of the Government Communications Headquarters (GCHQ) in the circumstances described below. The issue in the appeal is whether that payment is chargeable to income tax under Sch. E; and we are told that this is a test case which is expected to determine also the liability of other members of the GCHQ staff who received similar payments.
Miss Hamblett started work at GCHQ, as a trainee typist, in October 1964. By January 1984 she had risen to the grade of Executive Officer, responsible for running a section of the office with eight people working under her; and her salary was £8,118 a year. Her conditions of service had been explained in an attachment to the letter of appointment sent to her by the Establishment and Personnel Officer on 30 September 1964. The introduction to that document reads:
The following summary of your main conditions of service, as they apply at present, is provided for your information. Any significant changes will be notified by means of General Notices or General Orders. Complete details of conditions of service applicable to all non-industrial civil servants are contained in the Staff Handbook, a copy of which is held by the Divisional Administrative Officer of the Division to which you will be assigned.
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