Shilton v Wilmshurst

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date06 Dec 1989
Judgment citation (vLex)[1989] EWCA Civ J1206-5
Docket Number89/1182

[1989] EWCA Civ J1206-5






Royal Courts of Justice.


The Vice-Chancellor

(Sir Nicolas Browne-Wilkinson)

Lord Justice Staughton

Lord Justice Beldam


Peter Leslie Shilton
(Appellant) Respondent
John Wilmshurst (H.M. Inspector of Taxes)
(Respondent) Appellant

MR. ANDREW THORNHILL, Q.C. and MR. D.S. EWART (instructed by Messrs. George Davies & Co. of Manchester) appeared on behalf of the (Appellant) Respondent.

MR. ALAN MOSES (instructed by the Solicitor of Inland Revenue) appeared on behalf of the (Respondent) Appellant.


This is an appeal by the Inland Revenue from a decision of Mr.Justice Morritt.


The judge allowed an appeal by the taxpayer, the England goal-keeper Peter Shilton, from a decision of the General Commissioners for the division of South Nottingham that a payment of £75,000 made by Nottingham Forest Football Club to the taxpayer on his transfer from Nottingham Forest to Southampton Football Club was an emolument of the taxpayer's employment with Southampton and therefore taxable under Case 1 of Schedule E in section 181 of the Income and Corporation Tax Act 1970.


The case stated is reported at [1988] S.T.C. 868. The relevant facts are stated by the judge in his judgment (ibid and [1989] 1 W.L.R. 179) from which I take the following summary.


By a contract dated the 28th September, 1979 the taxpayer had contracted to play as a professional footballer for Nottingham Forest until 31st July, 1983. By the rules of the Football League, the taxpayer would be entitled from July 1983 to sign up with the club of his choice without that club being under any obligation to pay any transfer fee to Nottingham Forest. By July 1982 Nottingham Forest were under some pressure to raise money by the sale of players and to reduce their wages bill.


In or about July 1982 the manager of Nottingham Forest received an offer from Southampton for the transfer of the taxpayer from Nottingham Forest to Southampton at a transfer fee of £325,000 subject to terms being agreed between the taxpayer and Southampton. This offer was accepted by Nottingham Forest. On the taxpayer's return from holiday, the manager of Southampton told him that a transfer had been agreed subject to the taxpayer and Southampton agreeing the terms of his new employment. The taxpayer in discussion with the manager of Nottingham Forest indicated that he would be prepared to move if the terms were right. The manager of Nottingham Forest indicated to the taxpayer that should the taxpayer agree terms for his employment with Southampton, Nottingham Forest might be willing to make a payment to the taxpayer for consenting to a transfer. The taxpayer agreed the terms of his employment with Southampton which included a signing-on fee of £80,000. Following that agreement the taxpayer agreed with the manager of Nottingham Forest that Nottingham Forest would pay the taxpayer £75,000 if he agreed to his transfer to Southampton. On the 13th August, 1982 the taxpayer entered into his new contract with Southampton and on the 19th August, 1982 the Board of Nottingham Forest agreed to pay the taxpayer the £75,000 ("the Nottingham Forest payment") which was duly paid shortly thereafter.


The deal was attractive to Nottingham Forest because that club would receive a net sum of £250,000 (after making the Nottingham Forest payment) whereas if the taxpayer left them the following year they would receive nothing. The General Commissioners also found that the deal was attractive to the taxpayer: his new contract with Southampton gave him security for four years; the terms of his employment with Southampton were an improvement on those he was currently enjoying with Nottingham Forest, and he would receive the signing on fee of £80,000 payable to him by Southampton.


After pointing out that the negotiations had three component parts, the General Commissioners found as facts:

"5(i) Although there were three parts of the negotiations these parts should be looked at as a whole as if agreement had not been reached between the appropriate parties on each part, then the whole would have failed.

(j) The payment by Nottingham Forest to the Appellant was an inducement to him to play football for Southampton and as such an emolument flowing from that service which he was to render to Southampton."


The conclusion of the General Commissioners was that the Nottingham Forest payment was chargeable to tax under section 181 of the Act of 1970 "as an emolument of his employment with Southampton."


It must be stressed that in this case the taxpayer had two employments: one with Nottingham Forest, the other with Southampton. Although the Nottingham Forest payment was made to the taxpayer by Nottingham Forest, the Revenue's claim is not that it was an emolument of his employment with Nottingham Forest, but that it was an emolument of his employment with Southampton. It is common ground that, if the Revenue's claim is wrong, the Nottingham Forest payment is assessable to tax under section 187 of the Act as a "golden handshake" from Nottingham Forest but there will be certain tax reliefs which are not applicable if the Nottingham Forest payment is to be treated as an emolument of the taxpayer's employment with Southampton.


Section 181 of the Act provides that tax under Schedule E "shall be charged in respect of any office or employment on emoluments therefrom". Section 183(1) provides that "emoluments" shall include "all salaries fees wages perquisites and profits whatsoever". It is not in dispute that the Nottingham Forest payment was an emolument. The sole question is whether the Nottingham Forest payment was a payment in respect of the taxpayer's employment with Southampton and arose "therefrom".


The judge held that the Nottingham Forest payment was not an emolument "from" the taxpayer's employment with Southampton. Whilst he accepted that a payment to an employee by someone other than the employer can be an emolument of that employment, he held that the Nottingham Forest payment could not be so characterised because the payer (Nottingham Forest) had no direct or indirect interest in the performance of the taxpayer's contract with Southampton: the sole interest of Nottingham Forest was that the taxpayer should enter into, as opposed to perform, the contract with Southampton since it was on that event that Nottingham Forest became entitled to the payment of £325,000 by way of transfer fee.


The Revenue submit that the judge, in so holding, was either improperly interfering with the Commissioner's decision on a question of fact or laying down an erroneous proposition of law viz that a payment by a third party can never be an emolument from employment unless such third party has an interest in the performance by the employee of the contract of employment. The Revenue submit that such proposition of law is only maintainable if an emolument can only be treated as arising "from" the employment if it is a reward for services past, present or future. It is submitted that two recent cases, Hamblett v. Godfrey 59 T.C. 694 and Bray v. Best [1989] 1 W.L.R. 167 show that a payment can be a taxable emolument even though it is not paid or received as a reward for services.


It is necessary first to consider how the law stood before those two recent cases. There is a wealth of authority on the question whether an emolument arises "from" employment. All recent cases stress that ultimately one must come back to the words of section 181 and ask whether the emolument arises "therefrom", i.e. from the office or employment. But although that is the ultimate question, helpful guidance can be obtained from the authorities. The first point, which is not in dispute, is that the question has to be looked at from the standpoint of the person who receives the payment, i.e. the employee: per Lord Simonds in Hochstrasser v. Mayes [1960] A.C. 376 at page 390. Next, although the words of the statute are the ultimate test, the idea which is expressed by those words is usefully illustrated by judicial glosses which indicate that the payment must have been received by the employee "as such" or "in his capacity of employee" or "by way of remuneration or reward for his services": ibid per Lord Radcliffe at page 391. Recently the gloss or interpretation of the statutory words most often referred to is that of Lord Radcliffe (ibid) who, speaking of the statutory words, said:

"For my part, I think that their meaning is adequately conveyed by saying that, while it is not sufficient to render a payment assessable that an employee would not have received it unless he had been an employee, it is assessable if it has been paid to him in return for acting as or being an employee."


This test is the one on which the Revenue relies in the present case.


The plainest example of a taxable emolument is remuneration paid to the employee by the employer. But it is established that, even if the payment to the employee is made by someone other than the employer (e.g. tips to a taxi driver) such payment may be taxable under section 181: Calvert v. Wainwright 27 T.C. 475. Even though the payment is not made by the employer, the tip is in essence a reward for the performance of the employment. We were not referred to any case where a payment made by a third party was held to be taxable where the reason for the payment was anything other than a reward for services past, present or future.


Again, in my judgment it is established by the authorities that a payment made by an...

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