Paul Dunstall Organisation Ltd and Another v Hedges
| Jurisdiction | England & Wales |
| Judgment Date | 08 December 1998 |
| Date | 08 December 1998 |
| Court | Special Commissioners (UK) |
special commissioners decision
Mr THK Everett and Dr AN Brice
Kevin Prosser QC and Elizabeth Wilson, counsel instructed by Baker Tilly, chartered accountants, for the appellants.
Ian Glick QC and Timothy Brennan, counsel instructed by the Solicitor of Inland Revenue.
1. Paul Dunstall Organisation Limited (the company) appeals against a notice of determination dated 19 October 1992 to tax of £316,061.40. The notice was issued because the Inland Revenue were of the view that the company should have deducted tax from emoluments of £800,000.00 awarded in June 1988 to Mr Paul Dunstall (Mr Dunstall), the sole director of the company.
2. Mr Dunstall appeals against a notice of assessment dated 21 December 1994 assessing tax under Schedule E on the same amount of £800,000.00. This notice of assessment was alternative to the notice of determination issued to the company.
3. Both the company and Mr Dunstall accepted that Mr Dunstall had received emoluments of £800,000.00 from the company and that those emoluments were taxable under Schedule E. However, they both argued that the liability was that of Mr Dunstall and not that of the company. It was agreed that, if the liability were that of the company, then interest on the outstanding tax would be payable; if the liability were that of Mr Dunstall then no interest would be payable. Although Mr Dunstall was willing to pay the amount of his assessment, he appealed against it in case the company were unsuccessful in its appeal, as he did not consider that tax should be paid twice in respect of the same emoluments.
4. In the relevant year of assessment, which was 1988/89, the material part of section 203 of the Income and Corporation Taxes Act 1988 (the Taxes Act) provided:
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203(1) On the making of any payment of, or on account of, any income assessable to income tax under Schedule E, income tax shall, subject to and in accordance with regulations made by the Board under this section, be deducted … by the person making the payment …
5. In 1988/89 the regulations made under the provisions of section 203(1) were the Income Tax (Employment) Regulations 1973 SI 1973 No. 334 (the 1973 Regulations). Regulation 6 was headed: "Deduction and repayments of tax under appropriate code" and the relevant parts provided:
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(1) Every employer, on making any payment of emoluments during any year to any employee in respect of whom a code authorisation has been issued to him for that year by the Inspector shall- …
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(b) deduct or repay tax in accordance with these Regulations by reference to the appropriate code, which shall be specified on the code authorisation.
6. Regulation 13 was headed "Calculation of deduction or repayment" and the relevant parts provided:
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13(1) On the occasion of any payment of emoluments to the employee, the employer … shall ascertain the cumulative emoluments of the employee at the date of the payment … and the corresponding cumulative tax.
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(2) If the said cumulative tax exceeds the cumulative tax corresponding to the employee's cumulative emoluments at the date of the last preceding payment of emoluments … the employer shall deduct the excess from the emoluments on making the payment in question.
7. Regulation 26 provided that, at the end of every income tax month, the employer should pay to the Collector all amounts of tax which he was liable to deduct from emoluments paid by him in that month. Regulation 29 provided that, if it appeared to the Inspector that there might be tax payable under regulation 26 which had not been paid, then the Inspector might determine the amount of such tax and serve a notice of determination on the employer. The notice of determination against which the company appealed was served under the provisions of regulation 29.
8. In June 1988 the company awarded a bonus of £800,000.00 to Mr Dunstall on condition that it be paid in the form of land. The company agreed to transfer the land to Mr Dunstall who immediately sold it to a third party who paid Mr Dunstall. The company argued that "payment" meant payment in money and the company had made no "payment" to Mr Dunstall. The Inland Revenue argued that "payment" included payment in money's worth; alternatively, that the principle in W T Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300 applied. The company argued that the principle in Ramsay did not apply.
9. Accordingly, the issues for determination in the appeal were:
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(2) whether the word "payment" in section 203 of the Taxes Act and in regulations 6 and 13 of the 1973 Regulations meant only "payment in money"; if it did then
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(3) whether the application of the principle in Ramsay led to the conclusion that there had been a payment in money.
10. At the hearing two bundles of documents (green bundle A and green bundle B) were produced. Not all the documents were referred to at the hearing. Oral evidence was given on behalf of the Appellants by Mr Dunstall. Oral evidence was also given on behalf of the Appellants by Mr Stephen Berger, a partner in Messrs Baker Tilly, Chartered Accountants. Mr Berger was previously a partner in the firm of Messrs Milne Ross which merged with Messrs Baker Tilly in August 1992. We found Mr Berger to be a reliable witness.
11. From the evidence before us we find the following facts.
12. In 1988 the company was in the business of property investment and trading. In particular it assembled properties for re-sale. The company had an issued share capital of 14,307 ordinary shares of £1 each. Mr Dunstall was the sole director of the company and owned all but one of its shares. The other share was owned by Mrs Florence Dunstall, who is Mr Dunstall's mother. Mrs Florence Dunstall was also the company secretary. Mr Dunstall's address was the same as that of the company and in all the copy correspondence produced at the hearing Mr Dunstall used the company's notepaper. It was not, therefore, possible to say from the correspondence when he was acting for the company and when he was acting in his personal capacity.
13. In 1986 the company purchased at auction a site of about one acre at Sutton for £69,000.00. The site was land-locked but on two sides it was surrounded by houses which fronted on to roads. In order to provide access to the site the company purchased two of the houses with the intention of demolishing them. Planning permission was then considered and it appeared that many more dwellings could be built on the site if the company were to acquire a small strip of land adjoining the site. That small strip was owned by the British Railways Board (British Rail). On 10 September 1987 British Rail offered to sell, subject to contract, the strip of land to the company for £40,000.00; completion was to be three calendar months after the grant of planning permission. An application for planning permission for 38 dwellings was then made and, as a result, the company was approached by a number of developers and received a number of offers for the land.
14. In March 1988 an offer of £1.42M was made by Princeton Developments (Princeton) for whom Mr Mark Jones of Messrs Sinclair Jones and Associates, Surveyors, acted. On 22 March 1988 Mr Dunstall wrote to Mr Jones to say that he was going abroad until 16 April; as no written offer had been received from Princeton, he had not instructed his solicitors; there was be a planning meeting two weeks away and he had decided to delay exchange until then. On 24 March 1988 Mr Jones wrote to Princeton to say that Mr Dunstall would proceed at £1.42M after 6 April. On or about 6 April 1988 the planning permission was granted and on 12 April 1998 Princeton wrote to Mr Jones confirming their intention to proceed with the acquisition of the land and offering £1.42M subject to six conditions; the letter suggested a meeting with Mr Dunstall on 18 April and concluded by indicating that Princeton intended to purchase the land as a joint venture and that a new company would be set up prior to completion.
15. On 21 April 1998 Mr Dunstall wrote to Princeton to say that he would instruct his solicitors to prepare a contract; the price would be £1.42M and the vendor would be the company. A deposit of 10% would be required on exchange. On the same day, namely, 21 April 1988, Mr Dunstall replied to Princeton's letter of 12 April and commented on the six conditions; the letter said that it would be "two or three weeks before exchange of contracts".
16. In May 1998 Mr Dunstall instructed the firm of Messrs Milne Ross and asked for advice about the potential profit to be made from the sale of the land at Sutton. He had discussions with Mr Berger and a number of options were considered. Mr Dunstall was advised that a bonus in kind in the form of land would not give rise to a liability for national insurance contributions. In the subsequent transactions Dr Colin Masters, a barrister with Messrs Milne Ross Associates which was a firm associated with Messrs Milne Ross, was involved. In evidence which we accept Mr Berger said that it was anticipated that if the company transferred the land to Mr Dunstall he would sell it on, although there was no certainty that such a sale would take place. The scheme assumed that there would be a subsequent sale although it could not be guaranteed.
17. On 20 May 1988 Mr Dunstall's solicitors sent the British Rail contract to Mr Dunstall for his signature. Also on 20 May 1998 Galliford Sears Limited (Galliford Sears), made an offer of £1.47M for the land. Galliford Sears was a reputable company well known in the area. On 24 May 1988 Mr Dunstall wrote to Galliford Sears and asked whether their offer was conditional and...
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