Palmer v Maloney and Shipleys
| Jurisdiction | England & Wales |
| Judgment Date | 26 July 1999 |
| Date | 26 July 1999 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Nourse, Aldous and Clarke LJJ.
Michael Sherry (instructed by Irwin Mitchell) for Mr Palmer.
John Walters QC (instructed by Williams Davies Meltzer) for the defendants.
The following cases were referred to in the judgment:
IR Commrs v Alexander Stirling Ltd 1944 SLT 79
IR Commrs v D Devine & Sons Ltd TAX(1963) 41 TC 210
Melluish (HMIT) v BMI (No. 3) Ltd TAX[1995] BTC 381
Pepper (HMIT) v Hart TAXELR[1992] BTC 591; [1993] AC 593
Smart v IR Commrs TAX(1949) 29 TC 338
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 a sole trader would qualify 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 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 his time" to the service of the company within and Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (5)s. 163(5)(b) as defined inTaxation of Chargeable Gains Act 1992 schedule 6 subsec-or-para 1Sch. 6, para. 1(2).
Mr Palmer controlled a company ("Autofreight"). He also had another business, GP Enterprises, which he carried on as a sole trader. He worked some 50 hours a week of which 42.3 to 45 hours were spent on Autofreight business. He was aged 57 at the relevant time and wished to reduce his involvement in the business in a tax efficient way while preserving the business for his daughter who worked in it.
On the advice of accountants ("the defendants") profits built up in Autofreight were distributed by way of dividends. It was not disputed that if the profits had been realised by way of a capital distribution which qualified for retirement relief, his tax liability would have been considerably lower.
Mr Palmer brought an action against the defendants claiming damages for negligent advice.
The question turned on whether Mr Palmer would have qualified for retirement relief, i.e. whether he was a "full-time working officer of the company" within Taxation of Chargeable Gains Act 1992 section 163 subsec-or-para (5)s. 163(5)(b) of the Taxation of Chargeable Gains Act 1992.
Held, allowing Mr Palmer's appeal by a majority (Nourse LJ dissenting):
"Full-time" working did not mean 24 hours a day or the whole of person's waking hours limited by the word "substantially" to exclude time spent eating, sleeping or resting, nor did it require a person to work only for one company. To decide whether a person was a full-time worker, it was necessary to compare the person's working time with the hours worked by comparable full-time workers. The 40-odd hours Mr Palmer spent working for Autofreight was equivalent to a full-time occupation. The time he spent on his other business was irrelevant.
Aldous LJ: Mr Palmer, the appellant, claimed against his accountants for damages for breach of contract and negligence in respect of advice given which he said resulted in him failing to obtain retirement tax relief under the Taxation of Chargeable Gains Act 1992. It was his case that he was entitled to relief as he was at the relevant time a full-time working officer of Autofreight (UK) Ltd in that he was "required to devote substantially the whole of his time to the service of that company … in a managerial or technical capacity". Laddie J in his judgment of 20 January 1998 ([1998] BTC 106) upheld the submissions of the respondents that Mr Palmer was not a full-time working officer of the company and therefore their advice to that effect was correct in principle. He therefore dismissed the action.
Mr Palmer has worked in the motor trade for many years. In about 1977-1978 he set up in business as a forwarding agent specialising in world-wide movement of motor vehicles and their parts. In 1979 he decided to give the business an identity and registered "Autofreight" as a business name and from March 1979 carried on business under that name. The name caused problems with certain of his clients who did not wish to supply him with goods destined for a foreign market. To overcome that problem and to take advantage of VAT relief he registered in 1979 "GP Enterprises" as a business name. GP Enterprises was from November 1979 used as a purchasing facility for overseas clients. All items purchased by GP Enterprises were exported through Autofreight.
In June/July 1985 Autofrieght (UK) Ltd was formed to take over the business of Autofreight. To facilitate the transfer they both traded until April 1989. From that date Autofreight (UK) Ltd carried on its forwarding business alongside Mr Palmer's purchasing business, carried on as before, under the name GP Enterprises.
Autofreight (UK) Ltd was controlled by Mr Palmer. He owned 93 per cent of the shares with the remaining seven per cent belonging to his wife. She did not work in the company, but their daughter, Mrs Denise Saunders, joined the business in 1982 and like her father worked for Autofreight (UK) Ltd during and after the take over period.
In 1991 Mr Palmer read an article which indicated that retirement relief from capital gains tax could be obtained by persons aged 55 and over. At that time he was 57 and wished to reduce his involvement in the everyday activities of the business, if that could be done in a tax efficient way whilst at the same time preserving the business for his daughter. He consulted the respondents. Pursuant to their advice a new company, Autofreight Ltd, which I will call Limited, was registered in November 1992. Mrs Saunders owned 60 per cent of the shares and the balance was owned by Mr Palmer and his wife. Limited started trading in 1993 and thereafter took over the business of Autofreight (UK) Ltd. Also upon the advice of the respondents profits that had built up in Autofreight (UK) Ltd were distributed by way of dividends. There is no dispute that if those profits had been realised by way of a capital distribution which qualified for retirement relief under the 1992 Act, Mr Palmer's tax liability would have been considerably lower than that which he incurred.
I shall come to the legislation dealing with retirement relief and the submissions of the parties, but the issue as to whether retirement relief could be claimed turned upon whether Mr Palmer was at the relevant date a full-time working officer of Autofreight (UK) Ltd as defined in the 1992 Act as amended. If he was, he should have been advised to seek retirement relief and the advice that he actually received from the respondents was, it is now accepted, misconceived. On this crucial issue the judge found the following facts at pp. 109-110:
The documents available show that at all material times the profits of GPE have been substantial. For example, in the year ending 30 April 1990 GPE's gross profits were just over £25,000, which is to be compared with the £110,000 gross profits of Autofreight (UK) Ltd. In the year ended 30 April 1992 GPE's gross profits were just over £40,000, whereas the gross profits of Autofreight (UK) Ltd were just over £78,000. Furthermore, it appears that all Mr Palmer's drawings, to the tune of many thousands of pounds per annum, were from GPE. He drew no money from Autofreight (UK) Ltd, although he may have received dividends from time to time.
Mr Palmer's evidence is to the effect that the business of GPE was much less time-consuming than the work he did for Autofreight (UK) Ltd. Although he was not paid by the latter company, it is not in dispute that he spent the majority of his time working for it. Mr Walters said that the defendants were not in a position to dispute Mr Palmer's assessment that 85-90 per cent of his working time was devoted to working for Autofreight (UK) Ltd, the remaining 10-15 per cent being devoted to GPE.
The judge made no finding as to the hours worked by Mr Palmer, but he said in his witness statement that he estimated that he worked about 50 hours per week, except when they were particularly busy when he worked seven days a week. I understand those estimates to relate to the hours worked for Autofreight (UK) Ltd and GP Enterprises as it seems that the two businesses were conducted from the same premises and during the hours worked by Mr Palmer and subsequently by him and his daughter. She said that at the relevant time the office was open between 9am and 5pm, five days a week (40 hours a week). It follows that the time spent on Autofreight (UK) Ltd's business ranged from 42.3 to 45 hours per week.
Relief for disposals by individuals on retirement from a family business were dealt with in Taxation of Chargeable Gains Act 1992 section 163s. 163 of the Taxation of Chargeable Gains Act 1992 as amended. The relevant parts of that section at the relevant time were:
Taxation of Chargeable Gains Act 1992 section 163163.Relief for disposals by individuals on retirement from...
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