Mairs (HM Inspector of Taxes) v Haughey
| Jurisdiction | Northern Ireland |
| Judgment Date | 08 May 1992 |
| Date | 08 May 1992 |
| Court | Court of Appeal (Northern Ireland) |
Court of Appeal (Northern Ireland).
Hutton LCJ, MacDermott LJ and Nicholson J.
Brian Kerr QC and R E Weatherup (instructed by the Solicitor of Inland Revenue) for the Crown.
Andrew Park QC and John Thompson (instructed by Evershed Wells & Hind, Birmingham) for the taxpayer.
The following cases were referred to in the judgments:
Edwards (HMIT) v Bairstow & Anor ELR[1956] AC 14
Glantre Engineering Ltd v Goodhand (HMIT) UNKTAX[1983] 1 All ER 542; [1982] BTC 396
Hamblett v Godfrey (HMIT) WLRTAXWLRTAX[1986] 1 WLR 839; [1986] BTC 143 (ChD); [1987] 1 WLR 357; [1987] BTC 83 (CA)
Henry (HMIT) v Foster; Hunter (HMIT) v Dewhurst TAX(1930) 16 TC 605
Hochstrasser (HMIT) v Mayes ELRELR[1959] Ch 22 (ChD, CA); [1960] AC 376 (HL)
Laidler v Perry (HMIT) ELR[1966] AC 16
Shilton v Wilmshurst (HMIT) ELRTAX[1991] 1 AC 684; [1991] BTC 66
Stones v Hall (HMIT) TAX[1988] BTC 323
Tilley v Wales (HMIT) ELR[1943] AC 386
Wicks v Firth (HMIT) WLRELRTAXELRTAX[1981] 1 WLR 475 (ChD); [1982] Ch 355; [1982] BTC 134 (CA); [1983] 2 AC 214; [1982] BTC 402 (HL)
Yuill v Wilson (HMIT) WLR[1980] 1 WLR 910
Income tax - Employment - Compensation for giving up rights under redundancy scheme - Lump sum paid by public body to employees when publicly owned enterprise sold - Whether emoluments from employment - Whether taxable benefit - Income and Corporation Taxes Act 1988 section 19 subsec-or-para (1) section 154 subsec-or-para (1) section 156 subsec-or-para (1)Income and Corporation Taxes Act 1988. sec. 19(1), 154(1), 156(1).
This was an appeal by the Revenue from the decision of a special commissioner that a lump sum paid to the taxpayer by the Department of Economic Development ("DED") as compensation for loss of rights under a redundancy scheme ("the scheme") when a publicly owned enterprise was sold to private owners and the scheme was discontinued was not taxable under Sch. E as an emolument of the taxpayer's employment or as a benefit in kind.
A lump sum, described as an "ex gratia payment", was paid to the employees of Harland and Wolff for accepting new terms and conditions of work and for giving up rights under an advantageous redundancy scheme in force when the enterprise was in public ownership. The lump sum was made up of two elements. Element A was a sum equal to 30 per cent of the amount which the employee would have received if he had been made redundant on 1 September 1989. Element B was 100 for each year of service with a minimum of 700. Although both elements were funded by the DED, element A was paid directly to the individual by the DED while element B was paid to him by the new Harland and Wolff company.
The taxpayer in the proceedings, who was representative of 2300 employees, appealed against an assessment to tax under Sch. E which included both elements. A special commissioner apportioned element A to consideration for the giving up of rights under the scheme having found that the amount of that payment was a fair valuation of the rights given up. He apportioned element B to an inducement to the taxpayer to enter into the new employment. On that basis element A was not taxable either as an emolument "from" employment under the Income and Corporation Taxes Act 1988 section 19Income and Corporation Taxes Act 1988, sec. 19 or as a "benefit" under Income and Corporation Taxes Act 1988 section 154sec. 154. Element B, however, was taxable as an emolument.
The Revenue appealed to the Court of Appeal in Northern Ireland against the special commissioner's decision on element A. The taxpayer accepted the special commissioner's decision in relation to element B.
The Revenue contended that both elements of the lump sum payment should be regarded as an inducement to enter into the new employment constituting an emolument of that employment but, if the part attributable to consideration for giving up rights under the scheme were not taxable, only part of element A should be so attributable. However, the compensation for loss of rights was to be regarded as an emolument from the employment. Receipt of a payment under the redundancy scheme would have been taxable in principle and thus compensation for loss of the contingent rights under the scheme would also be taxable. Further, if the payment was not an emolument of the employment, it was a benefit in kind.
Held, dismissing the Revenue's appeal:
1. The special commissioner was entitled to apportion element A wholly to consideration for giving up rights under the scheme. Not only was element A calculated by reference to 30 per cent of the amount which the taxpayer would have received had he been made redundant on 1 September 1989 but to arrive at a different conclusion would require remitting the case to the commissioner for further facts to be found. The case should not be remitted to afford the Revenue an opportunity to call fresh evidence which they could have called at the hearing. (Tilley v Wales (HMIT) ELR[1943] AC 386 and Yuill v Wilson (HMIT) WLR[1980] 1 WLR 910 at pp. 918-919 per Viscount Dilhorne followed.)
2. A payment made under the scheme would not have been taxable as an emolument "from" the employment under Sch. E. Such a payment would not have been made in return for acting as or being an employee but because the taxpayer was ceasing to be an employee and to cushion him against the hardship of losing his employment. If the receipt of a redundancy payment under the scheme would not constitute an emolument "from" the employment, the receipt of a sum paid to compensate for the loss of a contingent right to receive payment could not itself constitute an emolument "from" the employment (Hochstrasser (HMIT) v MayesELR[1960] AC 376 per Lord Radcliffe at pp. 391-392 and Lord Simonds at p. 389, Laidler v Perry (HMIT) ELR[1966] AC 16 per Lord Hodson at pp. 34-35 and Shilton v Wilmshurst (HMIT) TAX[1991] BTC 66 at p. 68 applied; Hamblett v Godfrey (HMIT)TAX[1987] BTC 83 distinguished.)
3. The payment was not a benefit in kind within Income and Corporation Taxes Act 1988 section 154sec. 154. The sum received from the DED was not received by the taxpayer "by reason of his employment" (even though that term was wider than the word "from" inIncome and Corporation Taxes Act 1988 section 19sec. 19) but because he had given up the right to a payment under the scheme if he became redundant. Although a cash payment might be a "benefit", a payment which was a fair valuation of the right which was given up - the right to receive a larger sum in the event of the taxpayer becoming redundant - was not capable of being a "benefit". If, however, the payment by the DED had been a benefit withinIncome and Corporation Taxes Act 1988 section 154sec. 154, it would have been capable of being "made good" by the taxpayer, within the meaning of Income and Corporation Taxes Act 1988 section 156 subsec-or-para (1)sec. 156(1), by non-pecuniary consideration, in this case by giving up his rights under the redundancy scheme. Test in Wicks v Firth (HMIT)TAX[1982] BTC 134 at p. 142 per Oliver LJ applied.
1. On 9 and 10 April 1991 I, one of the special commissioners [Mr Brian O'Brien] heard the appeal of Robert Haughey ("the taxpayer") against an assessment to income tax under Sch. E for the year 1989-90, in the sum of 23,242.
2. Shortly stated, the question for my decision was whether either or both of two sums (4,506 and 1,300) received by the taxpayer in that year of assessment and included in the assessed sum of 23,242 were table under Sch. E, either as "emoluments from his employment" (under Income and Corporation Taxes Act 1988 section 19sec. 19 of the Income and Corporation Taxes Act 1988) or as a "benefit" or benefits provided for him (under Income and Corporation Taxes Act 1988 section 154sec. 154 of that Act).
[Paragraphs 3 and 4 listed the witnesses who gave evidence and the documents before the commissioner.]
5. The facts of the case and the contentions advanced on behalf of the parties are set out in my written decision, a copy of which is annexed to and forms part of this case.
6. My decision was issued on 13 May 1991. For the reasons set out therein I held that the sum of 4,506 included in the assessed sum was not taxable, under either Income and Corporation Taxes Act 1988 section 19sec. 19 or under Income and Corporation Taxes Act 1988 section 154sec. 154; but that the sum of 1,300 had rightly been included in the assessed sum, as taxable underIncome and Corporation Taxes Act 1988 section 19sec. 19. I accordingly reduced the assessment by 4,506, to 18,736.
7. Immediately after the determination of the appeal both HM Inspector of Taxes and the taxpayer declared their dissatisfaction therewith as being erroneous in point of law. On 30 May 1991 HM Inspector of Taxes, and on 10 June 1991 the taxpayer required me to state a case for the opinion of the Court of Appeal in Northern Ireland pursuant to theTaxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56.
8. The questions of law for the opinion of the court are:
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(a) On the appeal by HM Inspector of Taxes-
(i) whether I erred in holding that the sum of 4,506 paid to the taxpayer was not an emolument "from employment" within the meaning ofIncome and Corporation Taxes Act 1988 section 19sec. 19 of the Income and Corporation Taxes Act 1988; and if not
(ii) whether I erred in holding that the receipt of that sum by the taxpayer was not a "benefit" in the sense in which that word is used inIncome and Corporation Taxes Act 1988 section 154sec. 154 of that Act.
(b) On the cross-appeal by the taxpayer - whether I erred in holding that the sum of 1,300 paid to the taxpayer was an emolument "from employment" within Income and Corporation Taxes Act 1988 section 19sec. 19 aforesaid.
This appeal by the taxpayer is against an assessment to income tax under Sch. E for the year 1989-90 in the sum of 23,242. The issue for my decision relates to the inclusion in that figure of lump...
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