Rogers v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 March 2011 |
| Neutral Citation | [2011] UKFTT 167 (TC) |
| Date | 11 March 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 167 (TC)
Guy Brannan (Chairman), Elizabeth Bridge
Laurent Sykes, Counsel, instructed by Crowe Clark Whitehall for the Appellant
Patrick Way, Counsel, instructed by Howes Percival on behalf of the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Income tax - employment income - whether receipt of shares was an emolument from employment within Income and Corporation Taxes Act 1988 section 19s. 19 Income and Corporation Taxes Act 1988 - whether an obligation to deduct PAYE under Income and Corporation Taxes Act 1988 section 203Fs. 203F or Income and Corporation Taxes Act 1988 section 203B203B Income and Corporation Taxes Act 1988
1.This is an appeal against an assessment of income tax for the tax year ending 5 April 2002 in an amount of £2,800,000. Essentially, the main question in the appeal is whether the Appellant is liable to income tax by virtue of being in receipt of an emolument from his employment when he received a transfer of shares in a holding company of the company which employed him. There is a secondary issue as to whether there was a requirement to deduct PAYE if the transfer of shares was an emolument. There was originally a third issue relating to costs, but during the course of the hearing HMRC withdrew their application.
2.The procedural background to this appeal is very unusual and is worth explaining, not least because during the hearing we were, at various points, referred to statements made in witness statements in respect of these earlier proceedings.
3.An assessment to tax gives rise to a statutory debt under Taxes Management Act 1970 section 55 subsec-or-para 2section 55(2)Taxes Management Act 1970 ("TMA"). The debt arises regardless of whether the assessment is under appeal. Usually an application to postpone payment of the tax is made at the same time as the appeal. HMRC usually consent to such postponement applications.
4.In this case, after initially giving consent to postpone payment of tax, HMRC applied for the postponed tax to be released for payment. The application was made to the General Commissioners at a hearing which neither the Appellant nor his representative were able to attend. A request by the Appellant's representative to reschedule the hearing was refused or at least went unanswered before the hearing.
5.By a letter dated 29 July 2008, the General Commissioners informed the Appellant's representative that the tax postponement should be reduced to nil thereby effectively releasing the tax for payment.
6.HMRC then took steps to enforce the statutory debt in the High Court.
7.The Appellant made a further application to the General Commissioners for postponement, to which HMRC objected. The General Commissioners decided in March 2009 that they did not have jurisdiction to change their earlier decision since there was no change of circumstances, as required by Taxes Management Act 1970 section 55 subsec-or-para 4section 55(4) TMA. The Appellant declared dissatisfaction with the decision of the General Commissioners and requested them to state a case for the High Court. The case stated was dated 20 November 2009.
8.While the Appellant was appealing the decision of the General Commissioners to the High Court, HMRC applied to the High Court for summary judgment in respect of the statutory debt resulting from the assessment. The application for summary judgment and an application for a stay in proceedings pending a decision of the High Court in respect of the decision by way of case stated by the General Commissioners on 20 November 2009 were heard by Floyd J on 12 November 2009. Floyd J decided ([2009] EWHC 3433 (Ch)) to grant a stay and to refuse the application for summary judgment.
9.We understand that HMRC's actions could have had the result of bankrupting the Appellant before he was able to have his appeal against the disputed tax heard.
10.At the same time, HMRC applied to strike out the Appellant's appeal, with costs, before this Tribunal on 22 October 2009. The application was withdrawn by HMRC at a hearing before this Tribunal (Judge Sadler) on 16 November 2009.
11.It will be obvious that the path to the hearing of this appeal has not been trouble-free.
12.The evidence in this appeal consisted of three ring binders of documents and oral evidence given by the Appellant, Mr Graham Platts, Mr Michael O'Connor and Mr Bruce Hutchison, all of whom were at one time employees of the Scorex group.
13.We find the following facts.
14.The Appellant's business background is in credit scoring.
15.He joined a finance company known as UDT in 1986 as a deputy manager in their credit scoring division. He joined UDT on the same day as Mr Platts. Mr Platts was an analyst with a mathematics degree from Cambridge University. Mr O'Connor was already working for UDT also as an analyst.
16.The Appellant, Mr Platts and Mr O'Connor ("the Team") were based in an office in Cockfosters in north London and soon became a close-knit team. They had complementary skills. The Appellant had experience of granting credit, Mr Platts had a mathematical background and between the three members of the Team they had the necessary software skills.
17.The Team had spent two years working for UDT when another colleague, George Wilkinson, was approached by a company called Infolink. At this stage Infolink was not a competitor, although it would eventually become one when it became part of a group called Equifax. The Appellant already had had business dealings with Infolink. The approach to Mr Wilkinson by Infolink gave the Team and other colleagues an opportunity to move en masse to Infolink.
18.The Team had some misgivings about Infolink's corporate culture and somewhat rigid regime, so instead of joining Infolink's offices in Croydon, they set up an independent office in Windsor to maintain their independence and flexibility.
19.The Appellant perceived that there was a promising market opportunity for the Team because they were, in his view, "smarter" and had more experience than their competitors. They also recognised that there was a close relationship between credit scoring and credit referencing and believed that they could develop Infolink's business by exploiting that relationship. In the words of the Appellant:
We felt we were creating something and whilst we all wanted to own part of the business, this did not happen. We aspired to be part owners of the business given our combined skills, our likely contribution to the success of the organisation and our contacts with the Financial Services sector. We wanted to be more than ordinary employees. We wanted to create value and share in the benefits as owners and shareholders of the business.
20.The Team were not able to persuade Infolink to give them the equity stake in the business which they desired. According to the Appellant, Mr Platts did most of the negotiating but in the end it came to nothing. In any event, frustrated by the rigid corporate regime of Infolink (the Appellant mentioned an incident where he had to travel to Croydon from Windsor to explain the purchase of a £15 office clock), the Appellant decided that he wanted to leave Infolink.
21.In 1987 the Appellant met Jean Michel Trousse ("JMT") at a conference, after which JMT tried to recruit the Appellant through a "headhunter". The Appellant turned down this approach because he did not want to leave the other members of the Team and other colleagues, as he put it, "in the lurch".
22.In 1988 JMT made another approach to the Appellant, this time over a dinner and offered a more attractive salary. At the time, the Appellant was also concerned about the financial status of Infolink and whether it was able to compete with larger market participants. As a result of this approach, the Appellant decided to join JMT.
23.JMT was a French citizen who owned the Scorex group of companies. He had previously been employed by the leading credit scoring company, Fair Isaac & Company. He had founded the Scorex group in 1986 but his two original consultants left in 1988. The group was virtually a start-up with only one client (Next/Grattan). The turnover of approximately £100,000 was derived almost entirely from that one client.
24.The Appellant was employed by Scorex (UK) Ltd ("Scorex UK") from 1988. He eventually left the group in 2003, when the main operating companies in the Scorex group were acquired by a competitor, Experian Limited ("Experian"), a subsidiary of GUS plc.
25.The corporate structure of the Scorex group is somewhat complicated. JMT owned 100% (via a nominee, Marie-Rose Pisarello) of Scorex NV, a Dutch Antilles incorporated company. Scorex NV, in turn, owned 100% of the shares of Scorex BV. Scorex BV, in a joint-venture with Experian, owned 51% of the A shares and 60% of the B shares in Scorex UK, with Experian owning 49% of the A shares and 40% of the B shares. Other entities in the Scorex group were also jointly owned directly or indirectly by Scorex BV and by companies associated with Experian. Before the joint venture with Experian there had been a joint venture with Grattan in similar proportions. Grattan sold its interest to Equifax, terminating the joint venture prior to Experian's involvement.
26.When the Appellant agreed to join the Scorex group he had offered to buy some shares and co-invest in the business. The Appellant wanted to invest approximately £10,000 to acquire an equity stake in the business. However, JMT apparently did not want him to participate in the ownership of the group at that stage.
27.Shortly after the Appellant joined the Scorex group, which at that time employed only a handful of employees, JMT indicated that the group needed greater mathematical expertise. The Appellant suggested Mr Platts as a suitable candidate...
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