McManus (John) v Griffiths (Inspector of Taxes) ; McManus (Diane) v Same

JurisdictionEngland & Wales
Judgment Date18 July 1997
Date18 July 1997
CourtChancery Division

Chancery Division.

Lightman J.

McManus & Anor
Griffiths (HMIT)

Stephen Silman (instructed by Aitken Kelly Associates) for the taxpayers.

Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.

The following cases were referred to in the judgment:

Barnett v Brabyn (HMIT) TAX[1996] BTC 345

Calvert (HMIT) v Wainwright TAX(1947) 27 TC 475

Edwards (HMIT) v Bairstow ELR[1956] AC 14

Fitzpatrick v IR Commrs WLRTAX[1994] 1 WLR 306; [1994] BTC 66

Hall (HMIT) v Lorimer WLRTAX[1994] 1 WLR 209; [1993] BTC 473

Hochstrasser (HMIT) v Mayes ELR[1960] AC 376

IR Commrs v Brander & Cruikshank WLR[1971] 1 WLR 212

Lee Ting Sang v Chung Chi-Keung ELR[1990] 2 AC 374

Mitchell and Edon v Ross ELR[1962] AC 813

Shilton v Wilmshurst (HMIT) ELRTAX[1991] 1 AC 684; [1991] BTC 66

Income tax - Sch. D, Case I - Taxpayer employed as stewardess at club under contract of employment - Under contract she also provided catering services on her own account - Whether profits of catering services taxable under Sch. D or Sch. E - Income and Corporation Taxes Act 1988 section 18Income and Corporation Taxes Act 1988, s. 18.

These were an appeals by the taxpayers, Mr and Mrs McManus, against a decision of the general commissioners for Peterborough that a catering service provided by Mrs McManus was taxable under Sch. D. Mr McManus had appealed against assessments for the years 1980-81 to 1989-90 and Mrs McManus had appealed against assessments for the years 1990-91 and 1991-92 after separate taxation of husband and wife was introduced.

By a contract of employment the taxpayers were employed by Burghley Park Golf Club as steward and stewardess. Under the contract Mrs McManus was to provide a catering service. She was to be responsible for the purchase of all foodstuffs and ingredients and was to be entitled to the proceeds of all receipts from catering. She was also to be responsible for "the engaging and remuneration of any extra staff required". Under the heading "Remuneration" the contract provided for a salary to be paid jointly to the husband and wife, "plus the profits from the catering service", and the club was to provide the necessary equipment and services.

Mrs McManus had to provide the catering service at certain specified times, but she alone decided the menu and the prices.

Under the contract of employment Mr McManus was entitled to a fixed annual vacation while Mrs McManus might take holidays by arrangement provided that alternative catering arrangements were made. Mr McManus managed the bar on behalf of the club. It was not his business.

Evidence was given by the secretary and the treasurer of the club that they had no details of the income from the catering and did not consider that they were entitled to such information.

The taxpayers contended that Mrs McManus was employed under a contract of employment, that the provision of catering was pursuant to an obligation on her as an employee and accordingly the profits of the catering business constituted an emolument from the employment taxable under Sch. E.

The Revenue argued that the question was one of fact decided by the general commissioners which could not be challenged on appeal unless it was shown that they had misdirected themselves in law.

Held, dismissing the taxpayers' appeals:

1. The question of Mrs McManus's status depended solely on the construction of the contractual documents viewed in the matrix of the facts in which they were signed. The question was accordingly one of law which the court should decide for itself.

2. There was no reason why two receipts under the same contract should not be of such different characters that one fell within Sch. E and the other within Sch. D.

2. So far as Mrs McManus was entitled to part of the joint salary paid to her and Mr McManus she was performing the duties of an employment. However, her status as an employee was not decisive in respect of the provision of catering services. While there were indications that Mrs McManus was acting as an employee when providing catering, such as that the club provided the premises and equipment, the indicia that she was self-employed prevailed. She was not subject to control as regards menu and prices; she was responsible for the employment of staff; and she was entitled to the profits. She had in effect a catering concession.


1. At a meeting of the commissioners for the general purposes of the income tax for the division of Peterborough held on 24 September 1992 and by adjournment on 22 September 1993 Mr and Mrs McManus appealed against the following assessments in respect of catering services under Sch. D for the years 1980-81 to 1991-92.

The assessments for the years 1980-81 to 1982-83 were raised pursuant toTaxes Management Act 1970 section 36s. 36Taxes Management Act 1970 for the purpose of making good to the Crown a loss of tax due to Mr McManus' wilful default. Pursuant toTaxes Management Act 1970 section 41s. 41 of the Taxes Management Act leave to make assessments under this section was granted on the 12 December 1991 by a commissioner for the general purposes of the income tax for the division of Stamford.

The assessments for the years 1983-84 to 1984-85 were also raised underTaxes Management Act 1970 section 36s. 36 (as amended by Finance Act 1989 section 149s. 149 of theFinance Act 1989) for the purpose of making good to the Crown a loss of tax due to Mr McManus' negligent conduct.

For all the above years of assessment viz. 1980-81 to 1991-92 the inspector gave notice of determination that interest shall be carried on the tax charged by the assessments at the prescribed rate from the date on which tax ought to have been paid until payment.

Mr and Mrs McManus appealed against the Taxes Management Act 1970 section 88s. 8 determinations.

2. The questions before the commissioners were, first, for the years 1980-81 to 1991-92 and as a preliminary issue whether the income from catering earned by Mrs McManus was taxable under Sch. D or Sch. E ofIncome and Corporation Taxes Act 1988 section 18 section 19ss. 18 and 19Income and Corporation Taxes Act 1988 ("ICTA 1988") and, secondly, for the years 1980-81 to 1984-85 whether for the purposes of Taxes Management Act 1970 section 36s. 36 of the Taxes Management Act 1970 there had been a loss of tax to the Crown due to Mr McManus' wilful default or negligent conduct.

3. The taxpayers were represented by an accountant, Mrs SE Fancett and the inspector by Mr GJ Flew, inspector of taxes.

4. The commissioners heard oral evidence from both Mr and Mrs McManus and from Patrick Hammond Mulligan, who was the secretary and treasurer of Burghley Park Golf Club (the club) and Norman Ian Smith who was chairman of the club house committee from 1980 to 1985, club captain in 1982 and club chairman from 1986 to 1991.

5. [Paragraph 5 listed the documents proved or admitted before the commissioners.]

6. The following facts were proved or admitted before us:

  1. (2) By a contract of employment (the contract) dated 4 February 1981 and made between Burghley Park Golf Club and Mr and Mrs McManus, Mr and Mrs McManus were employed as steward and stewardess of the club.

  2. (3) The duties imposed upon Mr and Mrs McManus by the contract included the provision of the catering services at the club and it was stated (inter alia) in cl. B:

    "the Stewardess is responsible for 1. the purchase of all food stuffs and ingredients, its preparation and presentation and the proceeds of all money received from catering" and at 3. "the engaging and remuneration of any extra staff required". The contract further stated under the heading "Remuneration" that

"the salary is paid jointly on a weekly/monthly basis in arrears at a rate of £4,500 per annum plus the profits from the catering service" and under the heading "Considerations", "the club will provide the necessary equipment and services to enable the stewardess to maintain a suitable catering service."

(4) The contract was varied from 1 January 1984 by a statement headed "Amendment to Contract of Employment for 1984". The amendment varied the amount of the salary but made no specific reference to the catering save a reference to opening hours as follows:

If there is no prospect of members requiring catering facilities (e.g., adverse weather) the stewardess may at her discretion close before the published hours.

(5) The contract was further varied by an addendum dated 28 February 1985 to be effective for the calendar year 1985 but there was no specific mention of catering save as to the hours of opening.

(6) The terms of employment were further varied by a contract of employment dated 1 April 1987 (1987 contract) and made between the same parties but in which Mr McManus is referred to as the clubhouse manager/steward and Mrs McManus as stewardess. In that agreement the duties of the stewardess are defined by cl. 3 as follows:

the Stewardess will provide a catering service approved by the House Committee at times agreed with the Club. She will be responsible for:

  1. (a) the cleanliness and care of the kitchens and associated areas, the fixtures, fittings, glassware, crockery, cutlery and utensils provided;

  2. (b) the purchase of all food stuffs and ingredients, the preparing and presentation of all food and the proceeds of all money received from the catering operation;

  3. (c) the engaging and remuneration of extra staff if required;

  4. (d) ensuring that both she and any kitchen staff she may employ wear the smocks provided while working in the kitchen area.

(7) The 1987 contract provided:

  1. (a) as to holidays - that "the Stewardess may take holidays by agreement with the Club providing that alternative catering arrangements are made";

  2. (b) specified the remuneration to be paid to "the Clubhouse Manager" but made no reference...

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