Palmer v Maloney and Shipleys
| Jurisdiction | England & Wales |
| Judgment Date | 20 January 1998 |
| Date | 20 January 1998 |
| Court | Chancery Division |
Chancery Division.
Laddie J.
Hugh McKay (instructed by Braby & Waller) for the plaintiff.
John Walters QC (instructed by William Davies Meltzer) for the defendants.
Capital gains tax - Retirement relief - Condition to be satisfied that individual worked "full-time" for company - Whether plaintiff who spent 85 to 90 per cent of his time on the company's business and ran another business as sole trader qualified for relief - Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (5) schedule 6 subsec-or-para 1Taxation of Chargeable Gains Act 1992, s. 163(5)(b); Sch. 6, para.1(2).
This was an action brought by the plaintiff against accountants who, he claimed, had negligently advised him to extract the profits from a company by paying an interim dividend when it would have been more advantageous to have made a distribution subject to retirement relief under the Taxation of Chargeable Gains Act 1992 section 163Taxation of Chargeable Gains Act 1992, s. 163.
The plaintiff was the major shareholder in a company, Autofreight Ltd ("the company"), to which he devoted 85 to 90 per cent of his working time. He also ran, as a sole trader, another business exporting cars. The two businesses were operated as separate concerns for commercial reasons. The profits of the export business were less than the company's business but the plaintiff drew income from the export business but not from the company.
On the advice of the defendants, the plaintiff paid an interim dividend in order to extract the capital he had built up in the company.
It was common ground that, if the plaintiff had qualified for retirement relief, it would have been more advantageous to have chosen the distribution route. The question was therefore whether the plaintiff would have qualified for relief.
Relief was given by the Taxation of Chargeable Gains Act 1992 section 163 schedule 6Taxation of Chargeable Gains Act 1992, s. 163 and Sch. 6. By Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (5)s. 163(5)(b), the claimant had to be a "full-time working officer or employee of the company", and byTaxation of Chargeable Gains Act 1992 schedule 6 subsec-or-para 1Sch. 6, para 1(2), a full-time working officer or employee meant any officer or employee who was required to devote "substantially the whole of his time" to the service of the company.
The plaintiff contended that the words were not to be taken literally, but a common sense approach was required. If an individual worked for another business, and that activity was subsidiary, very minor and not very time consuming compared to his work for the company, then he would still be substantially devoting his whole time to the company.
The defendants contended that "substantially the whole of his time" was equivalent to the whole of his time.
Held, dismissing the action:
1. The definition of full-time working in Taxation of Chargeable Gains Act 1992 schedule 6 subsec-or-para 1Sch. 6, para. 1(2) was not couched in terms of main or subsidiary activities. While the entitlement to relief would not be excluded by de minimis considerations, virtually the whole of a person's working time had to be devoted to the company if the relief were to be secured.
2. The amount of time devoted to the company was only one of the factors to be considered. It was also to be taken into account that the plaintiff's export business was a significant stand-alone business of substantial value in its own right on which he spent more than a very minor part of his time.
Laddie J: This is an action for negligence. The plaintiff is Gordon Neil Malcolm Palmer; the defendants are Shane Maloney, a chartered accountant, and Shipleys, a firm of accountants of which Mr Maloney has been a partner since 1991. Mr Palmer has, and had, certain interests in relation to the purchase, sale and forward freighting of motor cars. In this case I will have to refer to a number of businesses in which Mr Palmer has been interested. They are, first, GP Enterprises ("GPE"); that is an unincorporated business which Mr Palmer conducted as a sole trader. Secondly, there is Autofreight. That also was an unincorporated business which Mr Palmer conducted initially as a sole trader, but from about 1985 to 1989 in partnership with his daughter Denise. Thirdly, there is a company called Autofreight UK Ltd, of which Mr Palmer was the major shareholder, owning some 93 per cent of the shares, the remaining seven per per cent being in the name of his wife Joan. There is also a fourth entity, a company called Autofreight Ltd, but it plays a less significant part in the issues before the court.
In the 1980's, and until about 1994, Shipleys were responsible for Mr Palmer's tax affairs, and they were also the auditors and accountants for Autofreight UK Ltd. At the critical time to which the dispute before...
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Palmer v Maloney and Shipleys
...Gains Act 1992, s. 163(5)(b), Sch. 6, para. 1(2). This was an appeal by the claimant ("Mr Palmer") against a judgment of Laddie J ([1998] BTC 106), who held that he was not a full-time working officer of a company because, in the circumstances, he did not devote "substantially the whole of ......