Pettigrew
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 April 2018 |
| Neutral Citation | [2018] UKFTT 240 (TC) |
| Date | 26 April 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0240 (TC)
Judge Peter Kempster
The Appellant appeared in person
Mr Christopher Stone and Ms Georgia Hicks of counsel, instructed by the General Counsel and Solicitor to HM Revenue & Customs, appeared for the respondents
Income tax – Whether payment taxable as employment income – ITEPA 2003, s. 62 – ITTOIA 2005, s. 369 – O'Brien v Ministry of Justice [2013] 1 WLR 522 – Employment Tribunal in 2014 in Miller v Ministry of Justice (Case No 1700853/2007 etc) – TMA 1970, s. 9ZB – Bray (HMIT) v Best [1989] BTC 102 – Shilton v Wilmshurst (HMIT) [1991] BTC 66 – A [2015] TC 04381 – ITEPA 2003, s. 6 & 7 – ITEPA 2003, s. 5 – ITTOIA 2005, s. 369 – ITTOIA 2005, s. 687 – Henry (HMIT) v Foster (1932) 16 TC 605 – Hunter v Dewhurst (1932) 16 TC 605 – Prendergast (HMIT) v Cameron (1940) 23 TC 122 – Westminster Bank Ltd v Riches (1947) 28 TC 159 – Hochstrasser (HMIT) v Mayes (1959) 38 TC 673 – Laidler v Perry (HMIT) (1965) 42 TC 351 – Comptroller General of Inland Revenue v Knight [1973] AC 428 – Brumby (HMIT) v Milner (1978) 51 TC 583 – Bray (HMIT) v Best [1989] BTC 102 – Shilton v Wilmshurst (HMIT) [1991] BTC 66 – Mairs (HMIT) v Haughey [1993] BTC 339 – R & C Commrs v Tower MCashback LLP 1 [2011] BTC 294 – O'Brien v Ministry of Justice [2013] 1 WLR 522 – RFC 2012 plc (in liquidation) (formerly Rangers Football Club plc) v Advocate General for Scotland [2017] BTC 22 – Henley v Murray (HMIT) (1950) 31 TC 351 – Dale (HMIT) v de Soissons (1950) 32 TC 118 – London & Thames Haven Oil Wharves Ltd v Attwooll (HMIT) (1966) 43 TC 491 – Brumby v Milner (1976) 51 TC 583 – Hamblett v Godfrey (HMIT) [1987] BTC 83 – Wilson (HMIT) v Clayton [2004] BTC 477 – Kuehne + Nagel Drinks Logistics Ltd v R & C Commrs [2012] BTC 58 – Advocate General for Scotland v Murray Group Holdings Ltd [2015] BTC 36 – Bridges (HMIT) v Bearsley; Bridges (HMIT) v Hewitt (1957) 37 TC 289 – Holland (HMIT) v Geoghegan (1972) 48 TC 482 – Re Euro Hotel (Belgravia) Ltd (1975) 51 TC 293 – Kuehne + Nagel Drinks Logistics Ltd v R & C Commrs [2011] BTC 1,562 – Martin v R & C Commrs [2015] BTC 522 – Fidex Ltd v R & C Commrs [2014] BTC 530 – Moorthy v R & C Commrs [2016] BTC 501 – R & C Commrs v Tottenham Hotspur Ltd [2017] BTC 535 – Walker v Adams (HMIT) (2003) Sp C 344 – Kuehne + Nagel Drinks Logistics Ltd [2010] TC 00314 – Oti-Obihara [2011] TC 00819 – A [2015] TC 04381 – Tottenham Hotspur Ltd [2016] TC 05143 – Reid [2016] TC 04872 – Miller v Ministry of Justice Employment Tribunal (Case no 1700853/2017).
In Pettigrew [2018] TC 06473, the First-tier Tribunal (FTT) found that a compensation payment was arrears of earnings and the interest paid taxable as interest income.
The Appellant appealed against an enquiry closure notice issued on 30 January 2017 amending the Self-Assessment for the tax year 2014–05. The amendment was to correct the figures entered on the return to those included on Form P60. The amounts on Form P60 included payment for compensation and Pay As You Earn (PAYE) thereon. The Appellant considered the deduction of tax was incorrect because the amount paid represented damages for the statutory tort of breach and not arrears of wages or salary.
The payment made to the Appellant by the employer followed cases against the Ministry of Justice (“MoJ”) for its disparity in treatment between employed, fee paid or part time judges and whether they were employees for the purposes of earnings, training, leave and pension entitlement. A firm of solicitors, Browne Jacobson, acted for a number of claims for underpayments of training fees, daily rates and other fee paid work. The Appellant lodged a claim that included a statement and a “shortfall calculation” based on days sat, training and other working days.
On 27 October 2014 the MoJ wrote making a formal offer, which included:
- Compensation in respect of Non-Pension payments;
- The balance of payment for training days where only a half day was paid as opposed to a full day;
- The balance of payment for sitting days;
- An averaged London weighting based on sitting and training days;
The offer amounts to £55,045.42, which included an element of interest as agreed with the claimant's solicitors. The offer was accepted on 4 November 2014.
A considerable quantity of cases was presented to the FTT. The FTT found that:
- A payment not provided for in contractual terms and conditions does not prevent it being an emolument;
- A lump sum in settlement of litigation does not prevent it being an emolument of the employment;
- The employment was a sufficiently substantial reason for the payment; and
- The payment was in relation to statutory employment rights and connected to employment.
The amount of £48,859.10 of the payment was taxable as employment income (s. 6, 7 & 62 ITEPA). The amount of £6,186.32 of the payment was taxable as interest income (s. 369 ITTOIA).
The case further enforces the need to consider where and how a compensation payment is derived from.
[1] The Appellant (“Mr Pettigrew”) appeals against an enquiry closure notice issued on 30 January 2017 by the Respondents (“HMRC”) (“the Closure Notice”). The Closure Notice amended Mr Pettigrew's self-assessment return for the tax year 2014–15 so as to include a payment made to him in November 2014 of £55,045.42 (“the Payment”) by the Ministry of Justice (“MoJ”).
[2] In February 1996 Mr Pettigrew was appointed a part-time Chairman of Industrial Tribunals. Following changes to the structure of the tribunals, that appointment continued as a fee-paid Employment Judge until Mr Pettigrew retired with effect from 31 January 2016.
[3] To clarify the terminology, in England & Wales judges may be appointed on a permanent basis, termed “salaried appointment”, or – typically where the appointee continues in professional practice – on a part-time non-salaried basis, termed “fee-paid appointment”. Salaried judges may also be part-time, in the sense that they are appointed to sit less than five days per week, but in the discussion which follows (and in particular the authorities cited) the term “part-time” is synonymous with “fee-paid”.
[4] In recent years there has been a series of legal challenges to the policy and practice of MoJ (and its predecessor, the Department of Constitutional Affairs) of treating fee-paid judges differently from salaried judges in relation to pension entitlement, sitting fees, and other remuneration matters.
[5] 5. The pension entitlement dispute culminated before the Supreme Court in O'Brien v Ministry of Justice [2013] 1 WLR 522 where the background was explained thus:
[1] [Mr O'Brien] is a retired barrister. He also held part-time judicial office as a recorder appointed under s 21 of the Courts Act 1971, as amended. He claims to be entitled to a pension in respect of his part-time non-salaried judicial work. The case raises questions of domestic law about the status and terms of service of part-time non-salaried judges in England and Wales. They include chairmen and members of tribunals and others exercising judicial functions for remuneration. It also raises important questions of EU law as to which, having sought a preliminary ruling under art 267 of the Treaty on the Functioning of the European Union (OJ C83/47 30.3.2010) (“the TFEU”), the court has now received guidance from the Court of Justice of the European Union. …
[5] On 9 June 2005 Mr O'Brien wrote to the Department of Constitutional Affairs requiring that he be paid a retirement pension on the same basis, adjusted pro rata temporis, as that paid to former full-time judges who had been engaged on the same or similar work. He was informed by the Department in its reply dated 5 July 2005 that he fell outside the categories of judicial office holder to whom a judicial pension was payable. This was because the office of recorder was not a qualifying judicial office under the 1993 Act, and because there was no obligation to provide him with a pension under European law as he was an office-holder, not a worker.
[6] Mr O'Brien was not satisfied with the reasons he was given. On 29 September 2005 he started proceedings in the employment tribunal in which he claimed among other things that he was being discriminated against because he was a part-time worker. …
[6] Describing the outcome of the CJEU reference the Supreme Court stated:
[10] The effect of the questions that were referred, and of the ruling in response to them, is to divide the issues raised by Mr O'Brien's case into two parts. Firstly, there is the worker issue: whether the relationship between judges and the Ministry of Justice is substantially different from that between employers and persons who fall to be treated in national law as workers. The principles to which the Court of Justice refers are of general application. So although the argument was directed to the position of recorders like Mr O'Brien, the issue is of interest to all part-time judges, not just recorders. Secondly, there is the objective justification issue: whether the difference in treatment of part-time judges is justified by objective reasons. The answer to this issue may differ from one kind of non-salaried part-time judge to another. …
[7] On the worker issue, the determination of the Supreme Court (at [42]) was that fee-paid judges are in an employment relationship within the meaning of the relevant EU legislation, and they must be treated as “workers” for the purposes of the UK regulations on part-time workers: The Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551) (“PTWR”). After dealing with the objective justification issue (also in favour of Mr O'Brien) the Court (at [76]) remitted the case to the Employment Tribunal “for the determination of the amount of the pension to which Mr O'Brien is entitled under the Regulations in accordance with this judgment.”
[8] Another thread of the disputes related to differences in remuneration between salaried and fee-paid judges for...
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