Heasman v Jordan (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 27 July 1954 |
| Date | 27 July 1954 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income Tax, Schedule E - Basis of assessment - Special bonus payment - Whether assessable to Income Tax for year in which received.
The Appellant entered the employment of an aircraft company on 21st May, 1941. During the war the company's employees were required to work abnormally long hours. The weekly-paid staff received special overtime pay and cost-of-living bonuses but the monthly-paid staff, of which the Appellant was a member, did not receive similar remuneration to compensate them for their additional work.
On 27th June, 1945, the board of directors of the company resolved that a special bonus be paid to monthly-paid employees and, as a result, the Appellant received in July, 1945, a special bonus of £1,250. He was assessed to Income Tax under Schedule E for the year 1945-46 in an amount which included the special bonus of £1,250.
On appeal to the General Commissioners, it was contended on behalf of the Appellant that the special bonus was in respect of his extra work and effort for the period from May, 1941, to July, 1945, and did not relate wholly to the year 1945-46. The Commissioners held that the bonus was an emolument of the year in which the Appellant received it and confirmed the assessment. The Appellant demanded a Case.
Held, that the special bonus was a reward for services rendered between 21st May, 1941, and either 27th June, 1945, or the date of payment in July, 1945.
Stated under the Income Tax Act, 1952, Section 64, by the Commissioners for the General Purposes of the Income Tax for the Division of Kingston and Elmbridge for the opinion of the High Court of Justice.
1. At a meeting of the General Commissioners for the Division of Kingston and Elmbridge held at the Guildhall, Kingston-upon-Thames on 16th June, 1953, William John Heasman (hereinafter called "the Appellant") appealed against an additional assessment for the year 1944-45, and an assessment for the year 1945-46 under Schedule E, in the sums of £1,000 and £2,128 respectively, in respect of the emoluments of his employment as financial accountant to Hawker Aircraft, Ltd. (hereinafter called "the company"). The said assessments were admitted to be interrelated and it was agreed on behalf of the Inspector of Taxes that if the assessment for 1945-46 was confirmed, the additional assessment for 1944-45 must be discharged.
2. Each of the assessments included the whole or part of the sum of £1,250, being a special bonus (hereinafter called "the special bonus") paid to the Appellant by the company in July, 1945. It was not disputed by the Appellant that the special bonus constituted a taxable emolument, and the question which we had to decide was whether the whole of that amount was assessable as income of a single year, i.e. 1945-46, or whether it should be spread over a series of years, and if so which years.
3. The following facts were proved or admitted:-
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(a) The Appellant entered the employment of the company in 1941 and continued in that employment throughout the relevant period. His salary on appointment was at the rate of £480 per annum, and was increased by stages to £800 per annum by the year 1945-46. In addition to his salary, and apart from the special bonus, he received the following bonuses for special work done:-
In respect of the year ended 31st March, 1944
…
£70
In respect of the year ended 31st March, 1946
…
£80
(b) During the period of the war, and in particular the early years thereof, the company was under pressure to produce aircraft (for instance, the well known Hurricane fighter) as rapidly and in as great numbers as possible. As a result, it was necessary for all the company's employees in all departments to work long hours for approximately 61/2 days per week and to sacrifice their normal holidays, but the exact period during which these long hours were worked varied from one department to another. Consequent upon agreements with trade unions and staff associations, the weekly-paid employees of the company received overtime pay at premium rates for hours worked above the normal peacetime average, together with "cost-of-living" bonuses from time to time. The monthly-paid staff, however, of whom the Appellant was one, did not receive similar additional remuneration to compensate them for their additional work.
(c) On 27th June, 1945, the board met to consider the accounts for the year ended 31st March, 1944. They also had before them draft figures for the year to 31st March, 1945, which indicated that the company had made good profits. The financial position of the company thus making it possible, the board resolved that a bonus be paid to monthly servants, and that the distribution be settled by the local directors on the understanding that the total amount paid should not exceed £50,000 without reference to the full board. As a result, the Appellant received a bonus of £1,250 in July, 1945. This is the special bonus which forms the subject of the appeals before us.
4. Mr. John Towersey Lidbury, a director and secretary of the company, gave evidence, which we accepted, as follows:-
(a) In June, 1945, he was assistant secretary and personnel manager of the company, a position to which he had been appointed in 1942. On many occasions from 1942 onwards members of the monthly-paid staff of the company had indicated to him that they were suffering financially by comparison with the weekly-paid staff, since the latter were receiving overtime pay for Saturday and Sunday work, as well as for overtime work in the evenings and on Bank Holidays, and in some cases cost-of-living payments, while the former were receiving no such payments, although they were working similar hours. During the same period, he brought this position to the notice of the directors, particularly Mr. Chandler, who said that he quite agreed, but that nothing could be done about it at that moment, and that it must wait until the time came when it could be put right. The witness told the monthly staff not to worry, and that it would not be overlooked.
(b) Following the board meeting on 27th June, 1945, referred to in paragraph 3 (c) above, Mr. Chandler told the witness that the special bonus had been got through, and what the board had decided, and asked him to prepare for the local board a list recommending how the £50,000 should be split up amongst the people concerned. The witness obtained a list of the monthly staff which he broke down to the four main departments and graded the staff in each taking into consideration the period of paid monthly service and salaries, but not bonuses, so as to get a common line through them, and based his recommendations on the principle that the monthly staff had been paid for their ordinary working hours, and that the special bonus was for something outside their normal work. The witness then saw the chiefs of the departments concerned and discussed the merits of each case, as the result of which the grading was altered. He then took the four lists with recommended special bonuses to the board who approved them. No attempt, however, was made to apportion each special bonus to separate years of meritorious service. Cheques were then drawn and handed to the directors responsible for each section, for personal distribution. The witness himself distributed cheques to some members of the monthly staff. Of these he told some that in the envelope was a cheque which was to put right what they called "being hard done by" during the war-others he told it was to reimburse them for the long hours for which they had not received overtime. No one at the time so far as he knew, gave any thought to the exact period which was supposed to be covered by the special bonus, or to the question of spreading the special bonus back over the war years for tax purposes, or to the fact that, if this was done, less Income Tax might be payable than was actually deducted from the special bonus when it was paid. It was when he received a Surtax assessment that the question of spreading the bonus back came to his mind.
(c) With the exception of the works' nurses who were paid monthly for convenience, and staff who had newly joined the company, each member of the monthly-paid staff received a bonus payment, but no member of the weekly-paid staff received such a payment. None of the monthly staff who had been in the employment of the company during the whole or part of the war years, but had left before June, 1945, received the special bonus; included among the monthly-paid staff who were recipients of the special bonus were some who had been recently transferred from the weekly-paid staff. In their case the amount of the special bonus was comparatively small, being calculated by reference only to the period during which they had been monthly-paid, since so long as they had been weekly-paid they had been in receipt of overtime payments and cost-of-living bonuses. Generally speaking however, the amount of the special bonus received by a monthly-paid employee was substantial, in many cases being the equivalent of not less than six months of current salary and in some cases being in excess of a full year's salary.
(d) Apart from directors, and certain other senior members of the staff who were aware of the circumstances, all the recipients of the special bonus received a letter drafted by the witness and approved by the local board in the following terms:-
At a recent meeting, the Directors of the Company decided to mark their appreciation of the loyalty and industry of the monthly staff during the war years in the form of a gratuity. You have accordingly been allotted...
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