Shilton v Wilmshurst
| Jurisdiction | UK Non-devolved |
| Judge | Lord Bridge of Harwich,Lord Brandon of Oakbrook,Lord Templeman,Lord Ackner,Lord Goff of Chieveley |
| Judgment Date | 08 February 1991 |
| Judgment citation (vLex) | [1991] UKHL J0207-2 |
| Date | 08 February 1991 |
| Court | House of Lords |
[1991] UKHL J0207-2
Lord Bridge of Harwich
Lord Brandon of Oakbrook
Lord Templeman
Lord Ackner
Lord Goff of Chieveley
House of Lords
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Templeman. I agree with it and for the reasons which he gives I, too, would allow the appeal.
My Lords,
For the reasons given in the speech to be delivered by my noble and learned friend, Lord Templeman, I would allow the appeal.
My Lords,
In August 1982 the world-famous goalkeeper, Mr. Shilton, was transferred from Nottingham Forest to Southampton. There were three parts to the transfer. Nottingham Forest agreed with Southampton to transfer Mr. Shilton to Southampton for a transfer fee of £325,000. Nottingham Forest agreed with Mr. Shilton to pay £75,000 to Mr. Shilton if he agreed to be transferred to Southampton. Mr. Shilton agreed with Southampton that he would play for Southampton for four years on agreed terms as to salary and otherwise if Southampton paid him £80,000. The revenue assessed the sums of £75,000 and £80,000 amounting in the aggregate to £155,000, to income tax under section 181(1) of the Income and Corporation Taxes Act 1970. Mr. Shilton agreed the assessment so far as it applied to the sum of £80,000 paid by Southampton but disputed the assessment so far as it applied to the sum of £75,000 paid by Nottingham Forest.
Section 183 of the Act of 1970, now replaced by section 131 of the Income and Corporation Taxes Act 1988, provided that:
"(1) Tax under Case I, II or III of Schedule E shall … be chargeable on the full amount of the emoluments falling under that Case … and the expression 'emoluments' shall include all salaries, fees, wages, perquisites and profits whatsoever."
It is common ground that the sum of £75,000 paid by Nottingham Forest to Mr. Shilton was an emolument as defined by section 183.
Section 181 of the Act of 1970, as amended and now replaced, so far as material, by section 19 of the Act of 1988, provided that tax under Schedule E:
"… shall be charged in respect of any office or employment on emoluments therefrom which fall under …
Case I: where the person holding the office or employment is resident and ordinarily resident in the United Kingdom, …"
The commissioners found and it is not disputed that:
"Although there were three parts to 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."
On that finding the commissioners held that:
"The payment by Nottingham Forest to [Mr. Shilton] 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 commissioners concluded that the payment of £75,000 by Nottingham Forest to Mr. Shilton was chargeable to tax under section 181 of the Act of 1970 as an emolument of his employment with Southampton.
Morritt J. allowed an appeal by Mr. Shilton on the grounds that the payment of £75,000 by Nottingham Forest was an emolument "for" but not "from" his employment with Southampton and that an emolument paid to an employee by a third party, i.e. a person other than the employer, was only an emolument "from" the employer's employment if the third party had some interest in the performance by the employee of his contract of employment; [1989] 1 W.L.R. 179, 186. Nottingham Forest had no interest in the performance by Mr. Shilton of his contract of employment with Southampton. Once he had been transferred it did not matter to Nottingham Forest whether Mr. Shilton fulfilled his contractual obligations to Southampton or not or whether he kept goal for Southampton well or badly. The Court of Appeal (Sir Nicolas Browne-Wilkinson V.-C, Staughton and Beldam L.JJ.) upheld the decision of Morritt J. holding that to be chargeable under section 181(1) an emolument must be referable to the performance of services by the employee under his contract of employment; [1990] 1 W.L.R. 373.
If the emolument of £75,000 is not chargeable under section 181(1) it is chargeable under section 187 of the Act of 1970, now section 148 of the Act of 1988, but various reliefs and allowances apply to the charge under section 187, so the impost of tax on Mr. Shilton under section 181 will be heavier than the impost under section 187 which he has already paid. The revenue take the view that the result of this appeal will have substantial repercussions on the ambit of section 181 and may have repercussions on other taxing provisions. Accordingly the revenue now appeal and seek to restore the decision of the general commissioners and the assessment.
I sympathise with the conclusion which absolves Mr. Shilton from part of the tax claimed by the revenue but if that conclusion is to be upheld it must be consistent with the logical construction and application of the taxing statute. Section 181 is not confined to "emoluments from the employer" but embraces all "emoluments from employment;" the section must therefore comphrehend an emolument provided by a third party, a person who is not the employer. Section 181 is not limited to emoluments provided in the course of employment; the section must therefore apply first to an emolument which is paid as a reward for past services and as an inducement to continue to perform services and, secondly, to an emolument which is paid as an inducement to enter into a contract of employment and to perform services in the future. The result is that an emolument "from employment" means an emolument "from being or becoming an employee." The authorities are consistent with this analysis and are concerned to distinguish in each case between an emolument which is derived "from being or becoming an employee" on the one hand, and an emolument which is attributable to something else on the other hand, for example, to a desire on the part of the provider of the emolument to relieve distress or to provide assistance to a home buyer. If an emolument is not paid as a reward for past services or as an inducement to enter into employment and provide future services but is paid for some other reason, then the emolument is not received "from the employment." The task of determining whether an emolument was paid for being or becoming an employee or was paid for another reason, is frequently difficult and gives rise to fine distinctions. In the present case, the £80,000 emolument provided by Southampton was admittedly an emolument "from becoming an employee" and is admitted to fall within section 181 because £80,000 was paid as an inducement to Mr. Shilton to enter into a contract of employment under which he would perform services for Southampton for the next four years. The £75,000 paid by Nottingham Forest was also an inducement to Mr. Shilton to enter into a contract of employment under which he would perform services for Southampton for the next four years. True it is that unless Nottingham Forest and Southampton induced Mr. Shilton to enter the employment of Southampton, the sum of £325,000 would not be paid by Southampton to Nottingham Forest. Thus Nottingham Forest had a powerful motive for offering an inducement to Mr. Shilton to become an employee of Southampton. This motive does not alter the fact that the £75,000 paid by Nottingham Forest was an emolument "from employment" because it was an emolument "from becoming an employee" indistinguishable from the £80,000 paid by Southampton for the like purpose. If the provider of the emolument is the employer who has an interest in the performance of the contract, the court may find difficulty in accepting that the emolument was not "from the employment" but from something else. The difficulty is not so great where a person who is not the employer provides an emolument because such a person may well be activated by motives other than desire to see that the employee enters into or continues in the employment of another.
The authorities have been concerned with those cases in which it is not clear whether an emolument has been paid to an employee for acting or agreeing to act as an employee or has been paid for some other reason.
In Hochstrasser v. Mayes [1960] A.C. 376, I.C.I, operated a scheme under which I.C.I, made a tax-free loan to an employee member of the scheme to enable the employee to purchase a house. Under the scheme, if the employee were transferred to another place of work and sold his house at a loss, I.C.I, were bound to make good the loss. The employee purchased a house for £1,850 with the help of an I.C.I, loan of £300 and on transfer sold his house for £1,500. I.C.I, duly paid the employee £350 and this House decided that the emolument of £350 was not an emolument "from" employment. This was a case of an existing employee and Viscount Simonds decided that the emolument was not a reward for past services. Lord Radcliffe, said at p. 391:
"it is not easy in any of these cases in which the holder of an office or employment receives a benefit which he would not have received but for his holding of that office or employment to say precisely why one considers that the money paid in one instance is, in another instance is not, a 'perquisite or profit … therefrom.'
The test to be applied is the same for all. It is contained in the statutory requirement that the payment, if it is to be the subject of assessment, must arise 'from' the office or employment. In the past several explanations have been offered by judges of eminence as to the significance of the word 'from' in this context. It has been said that the payment must have been made to the employee 'as such.' It has been said that...
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