Ian Cameron & Others v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice Wyn Williams |
| Judgment Date | 08 May 2012 |
| Neutral Citation | [2012] EWHC 1174 (Admin) |
| Docket Number | Case No: CO/11644/2008 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 08 May 2012 |
[2012] EWHC 1174 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Wyn Williams
Case No: CO/11644/2008
CO/9346/2010
Jolyon Maugham (instructed by Michael Welch & Co) for the Claimants
Daniel Margolin (instructed by The Solicitor's Office HM Revenue & Customs) for the Defendants
Hearing dates: 24, 25 & 26 January 2012
Introduction
I have to adjudicate upon two sets of proceedings. In the first set of proceedings there are two Claimants, Ian Cameron and Nautilus International (formerly Nautilus International). In the second set of proceedings there is one Claimant, Alon Palmer. The Defendants in each claim are the Commissioners for HM Revenue & Customs. Ian Cameron and Alon Palmer seek substantive relief. No substantive relief is claimed by Nautilus International. Accordingly, and also for ease of reference, for the remainder of this judgment Ian Cameron is referred to as the First Claimant and Alon Palmer as the Second Claimant.
The First Claimant worked as a seafarer between 1974 and 31 March 2007. Between 1974 and 1979 he worked on bulk carriers for Jebsens UK. Between 1979 and 1981 he worked for the British Shipping Federation aboard various cargo vessels. Between 1981 and 2002 the First Claimant was employed by P&O as the Chief Engineer on a vessel called the Hjaltland. This was a passenger ferry travelling between Aberdeen and Orkney and Shetland. In 2002 North Link Services (Guernsey) Ltd "took over" P&O and between 2002 and 31 March 2007 the First Claimant was employed by that company. He continued to act as Chief Engineer on the Hjaltland.
On 30 August 2006 Seatax Ltd submitted the First Claimant's tax return for the tax year ended 5 April 2006. In it the First Claimant claimed seafarer's earnings deduction (hereinafter referred to as "SED") in the sum of £72,936. Following an enquiry, the Defendants disallowed the entirety of the claim.
The Second Claimant has been a seafarer since about 1975. For many years he was the Chief Officer and relief Master of the vessel known as European Pioneer (which became known as the Stena Pioneer as from about 2004), a freight and passenger ferry operating between Larne and Fleetwood. For each of the tax years 2001/2002, 2002/03, 2003/04, 2004/05, 2005/06 and 2006/07 the Second Claimant made claims for SED and its predecessor, Foreign Earnings Deduction ("FED"). Following enquiries, the Defendants disallowed the claims for each year.
In these proceedings, the Claimants challenge the lawfulness of the Defendants' decisions to disallow their claims for SED/FED. They each argue that at the time they made their claims to the deduction they held a legitimate expectation that the Defendants would uphold them. The overarching issue in each case is whether, as regards each year of assessment, the Claimants held a legitimate expectation that they would be taxed in accordance with what the parties refer to in these proceedings as "the broad concession" (as to which see paragraphs 19 and 22 below).
Nautilus International is a trade union and professional organisation representing masters, officers, officer trainees and other maritime professionals. It has some 18,000 members. It is joined to these proceedings since a number of its members may have an interest the outcome. However, as I have said, Nautilus International does not claim any substantive relief in its own right.
As will become apparent, I consider it necessary to describe and make findings about various statements made by and on behalf of the Defendants going back many years. Before setting out a historical narrative, however, it is appropriate to explain the relevant statutory context in which that history unfolded.
The statutory context
Schedule 7 to the Finance Act 1977 introduced new provisions in relation to the taxation of earnings from work undertaken abroad. Paragraph 1 of Schedule 7 was in the following terms:—
"1 – (1) Where in any year of assessment –
a) the duties of an employment are performed wholly or partly outside the United Kingdom; and
b) any of those duties are performed in the course of a qualifying period which falls wholly or partly in that year and consists of at least 365 days,
then, in charging tax under Case 1 of Schedule E on the amount of the emoluments from that employment attributable to that period, or to so much of it as falls in that year of assessment, there shall be allowed a deduction equal to the whole of that amount.
(2) For the purposes of this paragraph a qualifying period is a period of consecutive days which either –
(a) consists entirely of days of absence from the United Kingdom; or
(b) consists partly of such days and partly of days included by virtue of sub-paragraph (3) below."
Paragraph 6 provided:—
"For the purposes of this Schedule a person shall not be regarded as absent from the United Kingdom on any day unless he is so absent at the end of it."
The provisions contained within Schedule 7 became known as the foreign earnings deduction or FED. In the years that followed legislative changes occurred. For example, in March 1988 FED was confined to persons employed as seafarers. As of the tax year 2006/07 the relevant legislative provisions were contained within the Income Tax (Earnings & Pensions) Act 2003. (It was following its enactment that FED became known as SED). The relevant sections of the 2003 Act are as follows:—
"378(1) A deduction is allowed from earning from an employment as a seafarer if –
a) the earnings are taxable earnings under section 15 or 21 (earnings for year when employee resident and ordinarily resident in UK),
b) the duties of the employment are performed wholly or partly outside the United Kingdom, and
c) any of those duties are performed in the course of an eligible period.
(2) In this Chapter "eligible period" means a period consisting of at least 365 days which is either –
a) a period of consecutive days of absence from the United Kingdom, or
b) a combined period.
(3) A combined period is a period –
a) at least half of the days in which are days of absence from the United Kingdom, and
b) which consists of three consecutive periods, A, B, C where –
A is a period of consecutive days of absence from the United Kingdom or a period which is itself a combined period,
B is a period of not more than 183 days, and
C is a period of consecutive days of absence from the United Kingdom.
(4) For this purpose a person is only regarded as being absent from the United Kingdom on any day if absent at the end of the day.
379(1) The deduction under section 378 –
a) is allowed from the amount of the earnings from the employment attributable to the eligible period, and
b) is equal to that amount.
(2) …..
(3) …..
382(1) Duties which a person performs on a ship engaged –
a) on a voyage beginning or ending outside the United Kingdom (but excluding any part of it beginning and ending in the United Kingdom) or
b) on a part beginning or ending outside the United Kingdom of any other voyage,
are treated as performed outside the United Kingdom for the purposes of this Chapter.
(2) Duties which a person performs on a vessel engaged on a voyage not extending to a port outside the United Kingdom are treated for the purposes of this Chapter as performed in the United Kingdom.
(3) For the purposes of sub-section (1) the areas designated under section 1(7) of the Continental Shelf Act 1964 (c29) are treated as part of the United Kingdom.
(4) ….."
Sections 378, 379 and 382 were derived from various provisions in earlier legislation. It is common ground that any linguistic differences between the provisions in earlier legislation and the provisions set out above are not material to the issues before me.
Section 378(1) of the 2003 Act makes it clear that SED is allowed only if three criteria are met. One of those criteria is that the person making the claim performs duties as a seafarer "in the course of an eligible period". Section 378(2) explains what is meant by the phrase "eligible period". As is obvious from the subsection, an eligible period is calculated by reference to "days of absence from the United Kingdom". A person is absent from the United Kingdom only if section 378(4) is satisfied. Under that subsection, a person will be regarded as being absent from the United Kingdom on any day only if he is absent "at the end of the day."
Schedule 7 of the 1977 Act contained similar provisions – see Schedule 7 paragraphs 1(2) and 6.
The Defendants' approach to determining whether or not a person was absent from the UK "at the end of the day" during the period 1977 to 2000.
As is obvious, it can be very difficult to determine whether a vessel and the seafarers upon it are inside or outside territorial waters at a given moment in time e.g. at the end of a day. Accordingly, as I understand it, even before the 1977 Act came into force measures were being taken to formulate criteria by which it could be determined whether or not a seafarer was absent from the UK or its territorial waters at the end of any given day. On 16 May 1977 a meeting took place between representatives of the Defendants, the Council of British Shipping and various trade unions which represented seafarers. At the meeting the parties sought to agree upon the interpretation of certain terms which were proposed to be used in the Finance Act 1977. As a consequence of the discussion at the meeting a working party was formed to consider some of...
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