Heaton (HM Inspector of Taxes) v Bell
| Jurisdiction | England & Wales |
| Judgment Date | 12 March 1969 |
| Date | 12 March 1969 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income tax, Schedule E - Emoluments of employment - Valuation of perquisite - Car loan scheme - Reduction in weekly wage consequent on loan of car by employer - Whether gross wage reduced - Whether benefit convertible into money.
Under a scheme operated by the Respondent's employer for employees earning under £2,000 a year, such employees whose applications were approved enjoyed the use of a car provided by the employer, on condition that it should be driven only by the employee, and accepted an "amended wage basis" consisting of a "weekly wage reduction". For any week in which an employee was absent sick and received no wage no other adjustment was made for the use of the car. The amount of the reduction depended on the type and age of the car; there was a general increase in April 1962 owing to increased costs. Employees could leave the scheme on giving 14 days' notice.
The Respondent joined the scheme in 1961; in the year 1963-64 his weekly wage reduction was £2 10s., increased to £2 18s. on his being lent a new car. The employer took the reduction into account in arriving at his taxable gross wage for P.A.Y.E. purposes.
The Respondent was assessed to income tax under Schedule E for the year 1963-64 on the footing that the amount of the reduction was part of his emoluments. On appeal, he contended (1) that his gross wage was reduced, and (2) that he could not turn his benefit under the scheme into money. For the Crown it was contended that the Respondent's emoluments were his gross wages before any deduction for the use of the car; alternatively, that he could turn his benefit into pecuniary account by surrendering his rights under the scheme and reverting to his former wage. The Special Commissioners accepted both the Respondent's contentions.
Held, (1) (Lord Reid dissenting) that the sums payable by the Respondent under the scheme were an agreed deduction from his gross wages; in the alternative,
(2) (Lords Hodson and Upjohn dissenting) that his free use of
the car was a perquisite which could be turned into money by surrendering it;(3) (by Lords Morris and Diplock) that the requirement of two weeks' notice for leaving the scheme did not affect the value of the perquisite.
Stated under the Income Tax Act 1952, s. 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 1st March 1966 Ralph Garland Bell (hereinafter called "the Respondent") appealed against an assessment made upon him under Schedule E, Income Tax Act 1952, for the year 1963-64 in the sum of £1,532 (less agreed expenses of £11 and superannuation payments of £7). The question for our determination was whether or not sums of £2 10s. per week up to 31st May 1963 and £2 18s. thereafter, being the amount of car loan scheme adjustments, as hereinafter described, were correctly included in computing the amount of the emoluments of the Respondent from his employment within the meaning of para. 1 of Schedule E of the Income Tax Act 1952.
2. The following witnesses gave evidence before us: the Respondent; Peter Bernard Stephens, B.A., F.C.A., the secretary of John Waddington Ltd. (hereinafter called "the company").
3. The following documents were produced and admitted in evidence before us and are attached to and form part of this Case:-
A. Copy of the Respondent's application form to join the scheme(1).
B. Copy of the memorandum of terms of service, signed by the Respondent on 3rd March 1961(2).
C. Copy of the company's summary of Craftsman's Car Service in respect of the Respondent(2).
D. Copy from company's "Motor Cars (Craftsmen)" file in respect of Austin car 3248 RO and Morris car 330 RAR(1).
E. Copy of the Respondent's payslip from the company for the week ending 5th June 1964(3).
F. Copy of the Respondent's payslip from the company for the week ending 13th December 1963, and also for week ending 8th November 1963(1).
The facts found by us are set out in paras. 4 to 11 below.
4. The Respondent was at all material times employed by the company as a machine minder in the lithographic department.
5. In 1954 the company decided to introduce a voluntary car loan scheme for the benefit of certain employees who earned less than £2,000 a year and who were not directors of the company. The managing director wrote to each employee who was eligible to join in the scheme as follows:
Dear Mr.
In view of the keen competition which is developing both at home and overseas I am most anxious to obtain the highest production possible through the simple economies of:
(a) Running the machines to the maximum amount of time and speed.
(b) Prevention of wastage.
(c) Concentration on the job in hand, and all the other efforts which can be made to greater efficiency.
I believe that a motor car is of great assistance when people live at some distance from their work and occasionally have to work unusual hours, also a motor car enables a man to have more recreation. Therefore, I have evolved a scheme whereby a craftsman may run a car, if he so desires, at most reasonable terms.
Motoring is not enjoyable unless it is trouble-free and safe. Only new cars (up to two years old) can give this assurance and safety. So my scheme concerns new cars only. At the end of two years the Company will trade the car (or cars) for new ones.
This scheme will enable the craftsman to travel to and from his work with speed and comfort and will also enable him, with his family, to make the most of his leisure hours.
The literature enclosed is Private and Confidential and the Agreement which will be necessary for you to sign is made as simple as possible. From the original four-page document of here-to-fores, etc., I have whittled it down to a short paragraph which both of us can understand.
In starting this scheme (which I hope will shortly include not only craftsmen, but others) I am laying myself open to all manner of criticism from all manner of quarters. All kinds of objections have already been raised but steadily, one by one, I have overcome them.
It has been suggested that this scheme will create jealousies. A man with no family may be able to afford to come into the scheme where perhaps a man with four children could not.
My reply to that was that the man with four children was indeed fortunate. I would sooner have four kiddies than forty cars. But children grow up rapidly, all too rapidly, and the scheme will still be available when the pocket permits.
An application form is enclosed and subject to all things being satisfactory the application will be accepted.
Afterward, the delivery of the car should take a matter of a few weeks only.
In conclusion, I hope this scheme will be a success and will prove of advantage to you, your family and the Company.
Yours sincerely,
Managing Director.
The following documents were enclosed with the letter:
(a) "Private and Confidential.
(b) Waddingtons' Craftsmen's Car Loan Service.
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(c) Conditions.
1. John Waddington, Limited will loan a new car (Ford Popular- Austin A30-Ford Anglia or Morris 8.) selected by the proposed user.
2. John Waddington, Limited will pay full comprehensive Insurance for each year of the service. (£15 per annum).
3. John Waddington, Limited will pay the Road Tax for each year of the service (£12 10s. per annum).
4. John Waddington, Limited will arrange for the decarbonizing of the car during the second year.
5. The user will sign a simple agreement.
6. An amended wage basis will come into operation if the application is accepted.
7. The user will provide his own petrol, oil, grease and other incidentals.
8. The user will provide for cleaning and running maintenance.
9. If the car is under repair for maintenance or following an accident the amended wage basis will still apply.
10. Completion of application form does not mean acceptance by the Company. They reserve full discretion on each application.
(d) John Waddington, Limited."
(e) A memorandum of terms of service to be signed by an employee who wished to join the scheme (para. 6 below).
(f) An application form to be filled in and signed by an employee who wished to join the scheme (para. 6 below).
When in 1954 the scheme was finally settled, a meeting was arranged for all the company's employees concerned to hear the details of how the scheme would operate.
6. The Respondent attended the meeting of employees in 1954 when the scheme was introduced, but did not join the scheme until 1961. In the meantime the Respondent did not attend any further meetings in connection with the scheme, but all relevant information was circulated to the employees and detailed information could be obtained if desired. On 10th February 1961 the Respondent signed an application form to join the scheme. A copy of the Respondent's application form is annexed hereto, marked "A", and forms part of this Case(1). The Respondent selected an Austin A40 De Luxe car, and on 3rd March 1961 signed a "Memorandum of Terms of Service".
A copy of the Respondent's memorandum of terms of service is annexed hereto, marked "B", and forms part of this Case(1).
On 30th May 1961 Mr. H.D. Brearley, the officer of the company in charge of the scheme, wrote to Mr. Stephens, the secretary of the company, as follows:
Craftsmen's Car Service.
The Austin A.40 De luxe car Reg. No. 3248 RO recently delivered has been allocated to Mr. R. Bell of the Litho Department.
Mr. Bell is a newcomer on the scheme and I am sending with this letter his signed agreement form and his completed application form fully approved.
He would like to take the car away today at 5.15 p.m. and if you will let me have the usual note saying that the car is insured, I will see that it is handed over to him.
On the same day, 30th May 1961...
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