MacKinlay v Arthur Young McClelland Moores & Company
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SLADE,LORD JUSTICE BALCOMBE,LORD JUSTICE STOCKER |
| Judgment Date | 29 January 1988 |
| Judgment citation (vLex) | [1988] EWCA Civ J0129-8 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 88/0071 |
| Date | 29 January 1988 |
[1988] EWCA Civ J0129-8
Lord Justice Slade
Lord Justice Balcombe
Lord Justice Stocker
88/0071
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE)
(MR. JUSTICE VINELOTT)
Royal Courts of Justice
MR. ANDREW PARK Q.C. (instructed by Messrs. McKenna & Co.) appeared for the Appellant.
MR. ALAN MOSES (instructed by the Solicitor of Inland Revenue) appeared for the Respondent.
This is an appeal by a firm now known as Arthur Young and formerly known as Arthur Young McClelland Moores & Co. ("the Firm") from an order of Vinelott J. made on 30th October 1986. He had before him an appeal from the Special Commissioners by way of case stated under section 56 of the Taxes Management Act 1970. The appeal related to an assessment to income tax made against the Firm under Schedule D for the year 1981/1982. For this purpose the assessable profits of the Firm fell to be calculated by reference to the accounting period 1st May 1979—30th April 1980. Briefly, the question at issue was and is whether two sums expended by the Firm as contributions to the expenses incurred by two of the partners in moving house at the request of the Firm are deductible in ascertaining those profits.
The Firm is a large and well-known firm of chartered accountants. As at 30th April 1980 it had 95 partners and about 1,400 employees, of whom about a half were professionally qualified. It had 15 offices in various parts of England and Scotland. A new office was opened in Southampton in September 1980. By the time of the period with which we are concerned a partners' meeting had become a practical impossibility and an Executive Committee took most of the administrative decisions needed for the smooth running of the Firm. This Committee consisted of an elected chairman, six elected members and one appointed member. The partners as a whole met biennially.
From time to time individual partners and employees were requested to move from one part of the country to another in order to work in a different office of the Firm, to ensure that the staff were deployed to the Firm's best advantage. The Commissioners' decision recorded (at pages 3–4):
"The practice of moving partners and employees from one of the Firm's offices to another commenced in about the year 1975. Within a short period of time it became the accepted policy of the Firm that any partner or employee might be requested to move for the benefit of the Firm's business. Employees of the Firm who were taken into partnership were made aware of the policy at the time of their admission to partnership. Partners of the Firm who became partners on the occasion of mergers were not always immediately aware of all the details of the policy on becoming partners in the Firm. The policy was not a, term of the partnership agreement.
In an effort to make this policy palatable and acceptable to all members of the Firm, the Executive Committee decided that the Firm would make a substantial contribution to the cost of the private removal expenses of each person who was asked to move."
The contribution was made up of three elements. These elements are set out in the decision but their details do not matter. It is not suggested that the amounts of the contributions were too generous or exceeded the expenses actually incurred by the recipients. The Firm's policy of requesting partners and employees to move and of contributing to their removal costs ("the Firm's Removal Policy") applied equally to partners and employees of whatever grade or seniority.
The Commissioners found as facts (at pages 5–6):
"All partners of the Firm approved and agreed with the Firm's Removal Policy. A partner would not be compelled to move if he refused after being requested to do so, but a partner who declined to move would be held in less esteem by his colleagues. We were told and we accept that his financial prospects might suffer and he would be looked upon as someone who did not have the best interests of the Firm at heart. Occasionally partners would refuse to move when requested and in one or two such instances their shares of profits were affected. Employees who were requested to move could not be compelled to do so and, unlike partners, their positions in the Firm would not be affected prejudicially should they refuse. On the other hand we heard no evidence concerning any instance of a refusal to move by an employee and the acceptance of such a move by an employee was likely to enhance his prospects of promotion within the Firm and might lead to promotion on the occasion of the move.
The Firm accepted that as it was requesting partners and employees to move from their homes for business reasons, it would be inequitable to expect them to bear the whole cost of such removal. Indeed the Firm realised that unless it bore the cost of such removals, it was most unlikely that anyone would move.
The Firm bore the cost of such removals only when the request came from the Firm. Any partner or employee who wished to move from one office to another for personal reasons and was permitted to do so, bore the entire cost of such removal himself. Equally, partners and employees who moved house whilst continuing to work at the same office bore the entire cost of their removals. Occasionally a person's wish to work in a different office accorded with the wishes of the Firm, but if the request for such a move came from the person undertaking it, he bore the entire cost without any contribution from the Firm."
During the relevant accounting period the Firm incurred expenditure of £8,568.40 on the relocation expenses of two partners. Of this sum, £5,446.25 was expended in connection with the removal of Mr. Wilson from London to Southampton and £3,122.14 was expended in connection with the removal of Mr. Cooper from Newcastle to Bristol.
The issue on this appeal is whether the expenses totalling £8,568.40 are deductible in ascertaining the Firm's profits for the relevant year. During the same accounting period the Firm paid out £15,560 in connection with the moving expenses of employees who moved at the Firm's request. Significantly, as the firm would submit, the Crown accepts that these expenses are deductible in ascertaining the Firm's profits for the relevant period.
The circumstances in which this expenditure arose are described in detail at pages 6–12 of the Commissioners' decision. They can be stated quite shortly. At the end of 1979 Mr. Darby, the chairman of the Firm and of the Executive Committee, asked Mr. Wilson, who was then living in London, to open a new office for the Firm in Southampton and to move to Southampton on a permanent basis, on the understanding that the Firm would bear his relocation expenses. In due course Mr. Wilson agreed to go. In January 1980 he moved with his wife from London to a new house in Southampton. The Commissioners made these findings (at page 8):
"Mr. Wilson would not have moved from London to Southampton in 1980 had his relocation expenses not been borne by the Firm. He was financially unable to bear the cost himself and also believed that it would have been unreasonable for the Firm to ask him to defray his own removal costs as he gained no immediate personal or financial advantage from the move. His links with Southampton were limited to his stay there as an undergraduate many years before and accordingly on the occasion of the move from London Mr. and Mrs. Wilson had to make a new life for themselves. From a financial point of view, in the short term Mr. Wilson suffered three disadvantages. First, his share of profit was reduced as he lost the London weighting element. Secondly, the prices of houses in Southampton increased less markedly from 1980 onwards than did those in London. Thirdly, although the Firm paid out a total of £5,446 towards his removal costs, such sum did not cover the entire costs of removal: the refurbishing of the house in Southampton cost substantially more than the amount of the Firm's disturbance allowance."
Mr. Cooper's move was a long-drawn out affair. In 1976 he was working as a partner in the Newcastle office of the Firm and lived in a house in Northumberland. In that year he was asked to move to Bristol to become leader of the Bristol office of the Firm. At that stage he declined to accept a permanent move to Bristol, but agreed to accept secondment to Bristol for two years. He retained his Northumberland house for the time being but in November 1976 purchased a cottage in Wiltshire, from which he commuted to Bristol, returning home to join his wife in Northumberland as often as possible. Subsequently, Mr. Darby again asked Mr. Cooper to accept a permanent move to Bristol. This time he accepted. He sold his house in Northumberland in May 1978, bought a house in Bristol in August 1979 and moved into it in May 1980. The Commissioners found as facts (at page 11) that "Mr. Cooper suffered considerable financial disadvantage as a result of his move from Newcastle to Bristol" and that "he would not have agreed to move to Bristol had the Firm not agreed to contribute to his removal costs".
The Commissioners heard oral evidence from Mr. Darby, Mr. Wilson, Mr. Cooper and Mr. Rouse, who was not a member of the Executive Committee and regarded himself as a "typical mid-career partner of the Firm". The Commissioners (at page 12) accepted evidence of the four partners to the following effect:
"The four partners who gave evidence before us all took the view that the Firm's Removal Policy was beneficial to the Firm and that it would be...
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