MacKinlay v Arthur Young McClelland Moores & Company
| Jurisdiction | England & Wales |
| Judgment Date | 31 July 1986 |
| Date | 31 July 1986 |
| Court | Chancery Division |
Chancery Division.
Mr. A. Park Q.C. (instructed by McKenna & Co.) for the taxpayer.
Mr. A. Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Vinelott J.
The following cases were referred to in the judgment:
Caillebotte (H.M.I.T.) v. Quinn UNK[1975] 2 All E.R. 412
Harrison (H.M.I.T.) v. Willis Bros. TAX(1965) 43 T.C. 61
Heastie (H.M.I.T.) v. Veitch & Co. TAX(1933) 18 T.C. 305
Mallalieu v. Drummond (H.M.I.T.) TAXELR[1983] BTC 380; [1983] 2 A.C. 861
Mason v. Tyson (H.M.I.T.) TAX(1980) 53 T.C. 333
R. v. General Commissioners of Income Tax for the City of London (ex parte Gibbs & Ors.) TAX(1942) 24 T.C. 221
Watson & Everitt v. Blunden (H.M.I.T.) TAX(1933) 18 T.C. 402
Income tax - Partnership - Sch. D. Case II - Computation of profits - Deduction - Payment of removal expenses of partners in accountancy firm required to move to another branch of firm - Whether deductible expenditure incurred wholly and exclusively for purposes of profession -Income and Corporation Taxes Act 1970 section 130 subsec-or-para (a)Income and Corporation Taxes Act 1970, sec. 130(a).
This was an appeal by the Crown against a decision of the Special Commissioners allowing the taxpayer's claim for income tax deductions in respect of expenditure reimbursing removal costs incurred by partners in the taxpayer firm who were required to relocate to another part of the country.
The taxpayer was a large partnership of accountants with offices throughout England and Scotland. In April 1980 it had 95 partners. From time to time individual partners and employees were required to move from one part of the country to another to work in a different office. In such cases, the taxpayer's policy was to make a substantial contribution towards the cost of the private removal expenses of each person who was asked to move.
During its accounting period to April 1980, the taxpayer paid removal expenses totalling £8,568 for relocating two of its partners. The tax inspector refused to allow its claim to deduct that expenditure in computing the amount of its liability to Sch. D income tax. An appeal by the taxpayer was upheld by the Special Commissioners on the ground that the expenditure was incurred wholly and exclusively for the purposes of the profession carried on by the partners of the taxpayer partnership and was thus deductible in arriving at the taxable profits of the taxpayer. The Crown appealed to the High Court.
The Crown submitted that there was a degree of duality of purpose involved in the expenditure. The partners had to live somewhere regardless of their professional or business positions. A partnership was not a separate entity for tax purposes from the persons comprising it. Thus even if there was no duality of purpose the expenditure was not deductible. The taxpayer had conceded that no such deduction could be claimed by a sole trader and a partnership was in a like position.
The taxpayer argued that the Commissioners were correct in deciding that whether one looked at the taxpayer as a single entity or as 95 separate entities, there was no duality of purpose in connection with the expenditure since it had been incurred wholly and exclusively for the purpose of its profession. Further the expenditure was deductible notwithstanding that it was incurred by partners in the partnership.
Held, allowing the Crown's appeal:
1. The taxpayer had rightly conceded that the removal expenses of a sole trader would not be deductible expenditure since it would serve a dual purpose, and there was essentially no difference between a sole trader and a partnership.
2. The Commissioners had directed their minds to the wrong question in reaching their conclusion. The question was whether expenditure which would not have been deductible if incurred by an individual trader was deductible if incurred by partners pursuing a policy adopted by all the partners to advance the interests of the firm.
3. Expenditure which in the case of an individual trader would fall to be treated as serving a dual purpose could not in the case of a large partnership be treated as expenditure incurred wholly and exclusively for the benefit of the firm as a separate entity, the personal benefit or advantage to an individual partner being treated as incidental. Consequently, the removal expenses incurred by the two partners were not deductible expenditure.
1. At a meeting of the Commissioners for the special purposes of the Income Tax Acts held on 10, 11 and 13 December 1984 Arthur Young McClelland Moores & Co. (hereinafter called "the Firm") appealed against an assessment made under Sch. D for the year 1981-82 in the sum of £6,000,000.
2. The question for our decision, our findings of fact on the evidence adduced, the respective contentions of Mr. A.E. Park Q.C. on behalf of the Firm and of the appellant in person together with our determination in principle are set out in our Decision which was issued on 21 January 1985 and a copy of which is annexed as part of this case.
3. [Paragraph 3 set out the partners who gave evidence before the Commissioners.]
4. [Paragraph 4 set out the documents proved or admitted before the Commissioners.]
5. In addition to the cases mentioned in our Decision the following case was cited to us:
Reynolds and Gibson v. Crompton (H.M.I.T.) TAX(1952) 33 T.C. 288.
6. Following our Decision in principle figures were agreed between the parties and on 28 March 1985 we adjusted the assessment accordingly.
7. The appellant immediately after the determination of the appeal declared to us his dissatisfaction therewith as being erroneous in point of law and on 29 March 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.
8. The question of law for the opinion of the court is whether we were correct in holding that certain expenses reimbursed to two of the partners of the Firm during the relevant year, in connection with the removals of their private residences, were wholly and exclusively laid out or expended for the purposes of the profession carried on by the partners of the Firm and therefore deductible in arriving at the taxable profits of the Firm.
Arthur Young McClelland Moores & Co. ("the Firm") appeals against an assessment to Income Tax made under Sch. D for the year 1981-82 in the sum of £6,000,000 in respect of profits from the Firm's profession as accountants.
The question for our determination is whether certain expenses reimbursed to two of the partners of the Firm during the relevant year, in connection with the removals of their private residences, were wholly and exclusively laid out or expended for the purposes of the profession carried on by the partners and therefore deductible in arriving at the taxable profits of the Firm (Income and Corporation Taxes Act 1970 section 130 subsec-or-para (a) section 130 subsec-or-para (b)Income and Corporation Taxes Act 1970, sec. 130(a) and (b)). (Statutory references hereafter are to the Income and Corporation Taxes Act 1970 unless otherwise stated.)
The Firm is an English partnership of accountants of considerable size. At the start of the relevant accounting period ("the accounting period") from 1 May 1979 to 30 April 1980 the Firm had 88 partners. It also had approximately 1464 employees of whom 629 were qualified accountants. At the end of the accounting period the Firm had 95 partners and approximately 1439 employees, 714 of whom were professionally qualified.
At the end of the accounting period the Firm had offices in the UK in the following places:
| London | Nottingham |
| Birmingham | Edinburgh |
| Bradford | Aberdeen |
| Bristol | Dundee |
| Dudley | Forfar |
| Liverpool | Glasgow |
| Manchester | Perth |
| Newcastle |
A new office was opened at Southampton on 1 September 1980.
The Firm is old established and has grown in size rapidly during the last 20 years and particularly since the removal of the statutory limit on the number of partners by section 120sec. 120 of the Companies Act 1967. At the date of the hearing the Firm had approximately 200 partners.
With such numbers frequent partners' meetings became a practical impossibility. The partnership agreement dated 1 November 1979 (Document No. 1) recognises the existence of the Firm's executive committee ("the Executive Committee") which takes most of the administrative decisions needed for the smooth running of the Firm. The Executive Committee consists of an elected chairman, six elected members and one appointed member. We heard oral evidence from Mr. J.O.R. Darby who became a partner in the Firm in 1959 and was elected chairman of the Firm and of the Executive Committee in 1975. He still held these positions at the date of the hearing.
The Firm's expansion in recent years has taken place partly by its opening new offices and partly by mergers with other firms. The Southampton office, opened by Mr. R.J. Wilson is an example of a new office. We were also given an example of a merger, namely that which took place on 1 May 1970 with Messrs Graham & Spoor of Newcastle, of which firm Mr. J.A. Cooper was a partner. Both Mr. Wilson and Mr. Cooper gave evidence before us. We also heard oral evidence from Mr. R.M. Rouse who became a partner of the Firm in 1966 and who, it was agreed, was an example of an average, mid-career partner of the Firm who was neither a member of the Executive Committee nor a recipient of any relocation expenses such as form the subject of this appeal.
The increase in the size of the Firm and the number of its offices made it necessary for the Executive Committee to look carefully at the manning of its offices and in particular to consider carefully who should be the senior or managing...
To continue reading
Request your trial
-
HM Revenue and Customs v Lansdowne Partners Ltd Partnership
... ... But a company can make a profit out of its members as ... 22 In Mackinlay v Arthur Young McClellend Moores & Co [1990] 2 ... ...
-
McKnight (Inspector of Taxes) v Sheppard
... ... (1972) 48 TC 580 MacKinley v Arthur Young McClelland Moores ELRTAX [1990] 2 AC 239; ... The company was quoted under r. 535. R plc's office was at Q ... To use the words of Lord Oliver in MacKinlay v Arthur Young McClelland Moores & Co at p. 255; ... ...
-
MacKinlay v Arthur Young McClelland Moores & Company
...to tax, I do not think that I can improve on the analysis in the instant case ofVinelott J. WLRTAX[1986] 1 W.L.R. 1468 at pp. 1474-1475; [1986] BTC 398 at p. 412 which I will both quote and adopt: There are, in effect, three stages. First, the profits of the firm for an appropriate basis pe......
-
Vodafone Cellular Ltd and Others v Shaw (Inspector of Taxes)
...Lawson (HMIT) v Johnson Matthey plc TAX[1992] BTC 324 MacKinlay (HMIT) v Arthur Young McClelland Moores & CoTAXTAXTAX(1989) 62 TC 704; [1986] BTC 398 (ChD), [1989] BTC 587 (CA) Mallalieu v Drummond (HMIT) ELRTAX[1983] 2 AC 861; [1983] BTC 380 S Ltd v O'Sullivan [1972] Irish Tax Cases No. 10......